四通控股有限公司 STONE GROUP HOLDINGS LIMITED2 STONE GROUP HOLDINGS LIMITED ANNUAL REPORT 2007/08 CORPORATE INFORMATION BOARD OF DIRECTORS Executive Directors DUAN Yongji (Chairman

STONE GROUP HOLDINGS LIMITED

STO

NE G

RO

UP H

OLD

ING

S L

IMIT

ED

Annual Report 2007/08

Annual R

eport 年報

2007/08

(Stock Code: 409)

年報 2007/08

(股份代號 : 409)

四通控股有限公司

四通控股有限公司

STRENGTHENING OUR FUTURESTRENGTHENING OUR FUTUREENNG NNGG OOUUURR FFUU EPLANNING TOMORROW'S GROWTH

CONTENTS

Corporate Information

Company Introduction

Chairman’s Statement

Financial Highlight

Milestones

Management Discussion and Analysis

Report of the Directors

Directors and Senior Management

Corporate Governance Report

Independent Auditor’s Report

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes on the Financial Statements

Five Year Financial Summary

Group Properties

2

4

6

9

10

12

22

37

41

47

48

49

51

52

54

58

135

136

2

STONE GROUP HOLDINGS LIMITED ANNUAL REPORT 2007/08

CORPORATE INFORMATION

BOARD OF DIRECTORSExecutive Directors

DUAN Yongji (Chairman and Chief Executive Officer)

SHI Yuzhu

SHEN Guojun

ZHANG Disheng (Chief Operation Officer)

CHEN Xiaotao

LIU Wei

Non-executive Director

CHENG Fumin

Independent Non-executive Directors

NG Ming Wah, Charles

Andrew Y. YAN

LIU Ji

LIU Jipeng

AUDIT COMMITTEENG Ming Wah, Charles (Chairman)

Andrew Y. YAN

LIU Ji

LIU Jipeng

REMUNERATION COMMITTEEAndrew Y. YAN (Chairman)


LIU Ji

ZHANG Disheng

LIU Wei

INVESTMENT COMMITTEEDUAN Yongji (Chairman)

SHI Yuzhu

ZHANG Disheng

CHEN Xiaotao

Andrew Y. YAN

COMPANY SECRETARYHUNG Ka Wai

QUALIFIED ACCOUNTANTHUI Yick Lok, Francis

REGISTERED OFFICE27th Floor

K. Wah Centre

191 Java Road

North Point

Hong Kong

3


CORPORATE INFORMATION

PRINCIPAL BANKERSBank of China (Hong Kong) Limited

Nanyang Commercial Bank Limited

Citic Ka Wah Bank

DBS Bank (Hong Kong) Limited

Bank of Communication Co., Ltd.

Industrial and Commercial Bank of China

China Construction Bank Corporation

Agricultural Bank of China

Hua Xia Bank

AUDITORSKPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Char ter Road

Central

Hong Kong

SHARE REGISTRARSComputershare Hong Kong Investor Services

Limited

46th Floor, Hopewell Centre

183 Queen’s Road East

Wanchai

Hong Kong

CONTACT INFORMATION OF INVESTOR RELATIONSE-mail: [email protected]

Tel: (852) 2115 6337

Fax: (852) 2880 5573

27th Floor, K. Wah Centre

191 Java Road, North Point, Hong Kong

STOCK CODE409 (Main Board)

WEBSITEwww.stone.com.hk

4


COMPANY INTRODUCTION

BACKGROUNDF o r m e r l y k n o w n a s S t o n e E l e c t r o n i c Te c h n o l o g y L i m i t e d , Stone Group Holdings L im i t ed (S tock code : 409 , the “Company”) w a s e s t a b l i s h e d o n September 3, 1987. After a successful restructuring exercise , the Company became the fi r st PRC based pr ivately-owned enterprise listed on the ma in board o f S tock Exchange of Hong Kong i n Augu s t 1993 . The Group and its subsidiaries

(the “Group”) are principally engaged in IT electronic & media-related business in mainland China, healthcare products business and investment business.

IT ELECTRONIC AND MEDIA-RELATED BUSINESSThe Group acts as the agent and distributor of industrial controllers, uninterrupted power supply system equipment, digital graphics, semiconductors, computers, etc.. Product coverage includes the brandname products of SIEMENS, FUJI and SAMSUNG, etc..

The technology of voucher printing and passbook printing with own-brand and own intellectual proper ty has now become the standard of invoice printing in China. The products are mainly used in banking institutions, tax systems and telecommunication sector. The passbook pr inter operated by the Group has become the well-known brand in the industries of finance, postal and telecommunications. The Group is also one of the founders who commenced the National Gold Tax Project of the State.

The Group’s TCS Depar tment is a value-added distributor. Its core activities are to provide the high-grade IT solutions required by enterpr ises . The solut ions it possesses including comprehensive solutions for network design, network architecture management, security management, system design and management, design and management of application software, printing administration, problem management, backup, and recovery management. The TCS Depar tment has entered into agreements with a number of

overseas famous IT product manufacturers, including Citrix Systems Inc. and Altiris Inc., both of the United States, to act as their general business agent and cooperative par tner in China.

In addition, with controlling interest, the Group is operating the internet café chain in Guangdong Province, China – Sunnet Café. In June 2004, the first full franchised Sunnet Café commenced business in Guangzhou, China. In December of the same year, the first full franchised Sunnet Café in Dongguan, Guangdong Province , commenced business. As at the end of March 2008, 78 directly operated and franchised shops are under operation. Shops are mainly located in Guangzhou, Dongguan and Shenzhen. The number of directly operated and franchised shops will be gradually increasing.

HEALTHCARE PRODUCT BUSINESSIn December 2003, the Group established its presence in the healthcare product market of the PRC through acquiring 75% equity interest of Shanghai GoldPar tner Biotech Co., Ltd (“Shanghai GoldPar tner”) and its whole management team. The acquired products “Naobaijin” and “GoldPar tner” are among the best selling healthcare products in the PRC. “Naobaijin” has been continuously awarded the best selling brand of healthcare product in the last 7 years and attained cumulative sales of more than RMB10 billion during the past 10 years. On the other hand, GoldPar tner has also been continuously awarded the best selling of vitamin supplements in the last 5 years. In 2005, GoldPar tner was recognized as one of the 100-best transferred projects awarded by Shanghai Hi-Tech Project Transfer Center. In 2006, both of “Naobaijin” and “GoldPar tner” were awarded “the most influential brand”. In June 2008, “Naobaijin” and “GoldPar tner” were awarded “the best 500 valuable brand in China” and were the No. 1 and No. 2 on the list of healthcare product industry according to “the most influential brand” campaign conducted by World Brand Lab. In Spring Festival of 2006, Shanghai GoldPar tner star ted trial marketing of the new

5


COMPANY INTRODUCTION

product “Huang Jin Xue Kang”. In August 2007, Shanghai GoldPar tner formally launched the GoldPar tner for men. In April 2008, Shanghai GoldPar tner entered into the market of healthcare wine with WuLiangYe Group by introducing the new product – “Golden Wine” to the public.

Shanghai GoldPar tner’s core competitivenesses are its extensive experience in China’s healthcare product market and its comprehensive ability to promote a product from strategic planning to implementation. It possesses China’s largest healthcare product distribution network. In addition, Shanghai GoldPar tner has set up 36 subsidiaries, 128 branch offices and 1,700 representative offices, which are all under the direct control of Shanghai GoldPar tner’s headquar ter. Shanghai GoldPar tner has also set up resident establishments in 1,694 counties and different workstations in China, such as Jiangsu, Zhejiang and Fujian. These establishments are managed by the relevant subsidiaries or offices. They have penetrated all areas in China except Hong Kong, Macau, Taiwan and Tibet. Moreover, included in our nationwide marketing network, we have 547 first – tier contracted distributors, 3,000 other distributors and over 300,000 major retail outlets in China. The speed of delivery is very fast, it can deliver to 50,000 terminals within two weeks and to 300,000 terminals within four weeks. We believe that high efficient sales management system which Shanghai GoldPar tner has developed represents a unique and effective channel management mode and a sale management methodology based on a strict management system, good cooperative relationship, and abundant management experience.

CCMGBy investing in and then becoming the single largest shareholder of China Cable Network Co., Ltd. (“CCN”), the unique nation-wide and multi-system cable TV operator (“MSO”) with substantial number of subscr ibers,

China Cable Media Group Limited (“CCMG”) has begun its investment in the PRC cable industry since 2003.

As at 31 March 2008, the total investment of CCMG in CCN was RMB444 million. It gradually increased its shareholding stake in CCN to 33.3%.

As at 31 March 2008, CCN had over 3.03 mil l ion subscribers. CCMG is also currently co-operating with some PRC broadcasting group companies in the area of television contents.

SINA.COMS I N A C o r p o r a t i o n (“S INA”) i s a lead ing online media and value-a d d e d i n f o t a i n m e n t service provider serving mainland China and the Ch ine se commun i t i e s throughout the wor ld. SINA operates a number of regional websites for Greater China and overseas Chinese communities.

MTYE s t a b l i s h e d i n 2 0 0 3 a n d h e a d q u a r t e r e d in Bei j ing . Bei j ing Me-To - Yo u I n f o r m a t i o n Technology Limited and Beijing Me-To-You System Integration Limited (collectively “Beijing MTY”) three principal activities are to act as Service Provider (SP), and to provide Global Positioning Services (GPS) and Telematics Service Provider (TSP). Through its unified mobile value-added service platform and nationwide customer service system, it provides enter tainment services to the public users and mobile information solutions to corporate users of China. Based on the increase of the number of cars and car owners in mainland China, to provide the users with non-stop online ar tificial-intelligent voice navigation ser vice and the automobile ser vice will have a ver y enormous market oppor tunity. Meanwhile, Beijing MTY launched the terminal products for consumers, e.g GPS Safe Driving Voice Notifier (Tanlu 303) and GPS Navigators (Tanlu303N), Communication Navigators (MTY-95190G and MTY-95190C) are well received by the market.

6


CHAIRMAN'S STATEMENT

On behalf of the Board of Directors of the Group, I am

pleased to announce the audited results of the Group

for the year ended 31 March 2008. The turnover of the

Group per audited accounts for the year ended 31 March

2008 amounted to HK$2.988 billion, profit attributable to

shareholders was HK$16.5 million, while earnings per share

was HK0.92 cent. Turnover increased by HK612 million

when compared with last year. However, profit attributable

to shareholders fell by HK$118 million, earnings per

share decreased by HK7.7 cents. The Board of Directors

recommends that final dividend shall not be paid.

BUSINESS REVIEWThe financial year 2007/2008 was comparatively turbulent.

During the first three quar ters, the Group’s IT electronic

business and healthcare product business benefited from

the boom stock markets and proper ty markets in China

and Hong Kong, as well as the spectacular growth of the

China economy which provided prosperous operating

env ironment for var ious industr ies whi le boost ing

consumption powers of consumers. Both turnover and

earnings of the Group achieved substantial growth.

However, sales in various regions were affected when the

impact from the sub-prime crisis in the United States and

macro-economic measures under taken by the Chinese

government began to take effect, added to these was the

adverse impact on the economy brought by the natural

disaster of heavy snowfall in China during the Spring

Festival. Despite of the cold front, employees of the Group

marched forward in their strenuous effor ts, the business

performance of this quar ter still inevitably fell shor t of

the budgeted level. Besides, the share prices of Sina and

China Railway Erju shares held by the Group dropped on

the balance sheet date, and the increase in those share

prices when compared with the previous balance sheet

date was minimal, therefore non-operating income of the

Group decreased by HK$133 million year on year, while

corresponding profit attributable to shareholders decreased

substantially.

In the past year, business performance of the distribution

of industrial controller product, Stone branded printer,

gold tax product and computer application software that

comprise our IT electronic business was good. The turnover

increased by 26.3% when compared with the same period

last year, generating satisfactory operating profits to the

Group. However, there were three depar tments within the

IT electronic business segment which continued to perform

poorly, therefore the management made the decision to

close them down gradually after repeated discussions

7


CHAIRMAN’S STATEMENT

and study of the issue, so as to focus deployment of the

Group’s resources on depar tments which generate earnings

and have development potential. During the course of

reorganization, it was inevitable that an one-off expenditure

was incurred. Therefore, the IT electronic business incurred

operating loss during the financial year overall, which has

already taken into account the first year operating profit

contributed by the internet café chain operated by the

Group in Guangzhou.

The business performance of healthcare products of the

Group is more encouraging. Despite the adverse impact

from the heavy snowfall disaster, turnover achieved during

the year still increased by 32.8% when compared with

the same period of last year. Naobaijin maintained its

position as the champion in terms of sale in the healthcare

product market in 2007 that marked the tenth year after

this product had first been launched in the market. Sale

performance of GoldPar tner was also gratifying, besides

achieving 46.8% increase in turnover, it also ranked among

the top three healthcare products in terms of sales

nationwide. The new product Huang Jin Xue Kang was also

selling well, market response was favourable although it was

introduced in only a few regions, its turnover had doubled

and exceeded HK$10 mil l ion. These three products

contributed the bulk of operating profits of the Group.

With regard to investment business, the Group, together

with its investment par tners, increased the equity capital

invested in CCMG in May last year and introduced new

investment par tners so that the registered share capital

of CCMG was increased by US$29 million. CCN which

was held by CCMG continued to perform well, with over

3 million registered users. In June, the Group together

with other investors, and I am one of them, invested

HK$60 million to form Stone Resources Limited for the

development of mineral resources in Yemen, Tanzania and

Australia. The Group holds 16.67% shareholding in that

company. Although that company has been set up for only

one year, its staff has already succeeded in finding superb

mining regions in the countries concerned, and has entered

into negotiation in relation thereof. The operating result

of Cayman MTY that operates mobile communication

network was still adversely affected by the government

policy on SMS and the delay in launching new products, so

its business performance was poor. The Group increased its

shareholding in that company from 40% to 49% in August

last year in accordance with the profit guarantee provision.

During the period from October to November, the Group

invested US$5 million in a bio-chemical company and

injected capital amounting to RMB 60 million in a real

proper ty company respectively in the pursuit of favourable

8


CHAIRMAN’S STATEMENT

investment return. In February 2008, the Group disposed of

more than 3 million shares in China Railway Erju A Shares,

profit on disposal amounted to over HK$20 million. During

the financial year, there has not been any disposal of shares

in Sina.

BUSINESS PROSPECTSThe development of healthcare product business will be

our core task. Besides continuous development of mature

products – Naobaijin and GoldPar tner, we will fir stly

consider expanding the scope of sales of Huang Jin Xue

Kang that will gradually be extended to the whole of China,

which will benefit patients who suffer from high blood

lipids. In addition, the Group will consider the introduction

of new products to meet the needs of different consumer

groups, to exploit the existing, huge, effective and highly

radiating national network of our healthcare product

business. The management is also considering co-operation

with existing healthcare product operators or relevant

industrial corporations so as to fully utilize the existing

sale network to increase returns to shareholders. As for

the IT electronic business, as mentioned above, the Group

will focus its effor ts on the business of industrial controller,

printer, gold tax product and computer application software,

and building on the foundation of existing market share, the

Group will exploit market potential in pursuit of greater

profit. After a year’s observation through Stone Resources

Limited, the Group has gained deeper knowledge in mineral

resources, maybe the Group will engage in mineral resource

business in the second half of the year to create a better

earnings growth point for shareholders. In line with the

above-mentioned developments, the Group has gradually

reduced shareholdings in cer tain investment projects since

May this year, it is planned that par t of the proceeds will be

injected into businesses which need to be developed.

DUAN Yongji

Chairman

Hong Kong, 22 July 2008

9


FINANCIAL HIGHLIGHT

NET PROFIT GEARING RATIO

0

300

600

900HK$’000 801,186

160,426 63,908

134,333

16,503

TURNOVER

0

400,000

800,000

1,600,000

1,200,000

2,000,000

2,400,000

2,800,000

3,200,000HK$’000

1,015,277

2,361,507

2,035,467

2,375,541

2,988,051

0

0.5

0.4

0.3

0.2

0.1

0.20

0.43

0.31

0.29

0.32

SHAREHOLDERS’ EQUITY

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,500,000

3,000,000

HK$’000

2,657,604

2,450,920

2,555,854

2,841,750

3,164,704

For the year ended 31 March 2008

04/05( 15 months)

03 05/06 06/07 07/08 04/0503 05/06 06/07 07/08

04/05( 15 months)

03 05/06 06/07 07/08 04/0503 05/06 06/07 07/08

2007/08

10


MILESTONES

NOVEMBER 2007Be i j i ng MTY forma l ly l aunched

“95190 Communication Navigator”

t o t h e m a r k e t , e q u i p p e d

w i t h f u n c t i o n s o f n a v i g a t i n g ,

communicating and call-diver ting.

SEPTEMBER 2007Executive Director, Mr. SHI Yuzhu,

through Ready F inance L imi ted

conver ted the Conver tible Notes in

the principal sum of HK$42,000,000

i n to 55 ,263 ,157 sha res o f the

Company.

“Naoba i j i n ” was awarded “ the

G r e a t Wa l l Awa rd o f Hone s t

A d v e r t i s e m e n t ” i n t h e 1 4 t h

Adver t i s ing Fest iva l . (Accord ing

to the 14th Adver t is ing Fest ival

conducted by China Adver t is ing

Council.)

JUNE 2008Beijing “Naobaijin” and “GoldPar tner”

were awarded “the best 500 valuable

brand in China” and were the No. 1

and No. 2 on the list of healthcare

product industry. (According to “the

most influential brand” campaign

conducted by World Brand Lab)

MARCH 2008“Naobaijin” has been continuously

awarded the best selling brand of

healthcare product brand in the last

7 years and attained cumulative sales

of more than RMB10 billion during

the past 10 years. GoldPar tner has

also been continuously awarded the

best selling of vitamin supplements

in the last 5 years. (According to the

sales list of healthcare products in

China announced by the Bureau of

Statistics of China)

APRIL 2008

Shanghai GoldPar tner entered into

the market of healthcare wine with

WuLiangYe Group by introducing the

new product – “Golden Wine”.

2007/08

11


MILESTONES

APRIL 2007

T h e C o m p a ny s u b s c r i b e d f o r

3 ,150 ,000 preference shares of

CCMG and conver ted US$6,899,441

of the loans and interests into

3 ,104 ,749 preference shares of

CCMG.

AUGUST 2007Beij ing MTY formally launched a

new product – Tanluzhe303N GPS

Navigator into the market.

A new packaging of Naobaij in –

three-bottle gift packing was formally

launched.

New product “GoldPar tner for

Men” with the compound vitamins

supplement was formally launched

into the market.

Shanghai GoldPar tner was awarded

“the best after-sale service in China”.

(According to the survey of the Best

After-Sale Service in China jointly

conducted by Information Office

of State Council of China, Bureau

of Information Industr y of Guang

Dong, the Election Committee of

the Best Customer Service in China,

Asia Customer Service Council, the

Council of Hong Kong Customer

Centre, etc..)

12


MANAGEMENT DISCUSSION AND ANALYSIS

The Group’s businesses are divided into two major categories: core operational business and investment business. Core

operational business principally includes IT electronic and media related business (hereinafter “IT business”) and healthcare

products business. The IT business includes the manufacturing and distribution of electronic products and operation of internet

cafe chain. The products in healthcare business are Naobaijin, GoldPar tner and Huang Jin Xue Kang. Investment business mainly

includes the interests in SINA Corporation (“SINA”) and China Railway Erju A shares, China Cable Media Group Limited

(hereinafter “CCMG”) and Me To You Holdings Ltd. (hereinafter “Cayman MTY”).

Benefiting from the robust China economy and the impact of appreciation of Renminbi of around 10% in the past year,

performance of the Group’s core operational business are satisfactory. For the year ended 31 March 2008, the audited

turnover was HK$2,988 million, representing an increase of 25.8% from last year. However, due to the granting of 124 million

share options by the Group to the Directors and employees, and in accordance with HKFRS 2 “Share-based Payments”, the

Group has to recognise the fair value of those share options as expenses. Accordingly, the operating expenses of the Group

during the year increased by approximately HK$28 million. In addition, a one-off provision for inventory of approximately

HK$16 million was made for the purpose of a consistent sales strategy change for healthcare products during the year, this

led to operating profits of only HK$76.15 million, representing a decrease of 25% from last year. Besides, there was significant

decline in the global equity markets at the year end due to the impact of sub-prime mortgage crisis in the United States, and

various measures under taken in China to suppress inflation resulted in significant decline in the unrealised gain from shares

held by the Group in the investment business. The non-operating income recorded only HK$102 million, representing a

decrease of 56.5% from last year. Therefore, profit attributable to equity shareholders of the Company amounted to HK$16.50

million only, representing a drop of 87.7% from last year.

13



BUSINESS REVIEW

Core Businesses

The growth in turnover of IT business and healthcare product business during the operating year was satisfactory. Turnover

and gross profit and their respective changes of these two principal business segments and product categories during the year

were as follows:

Increase/ Increase/

2007/08 2006/07 (Decrease) (Decrease)

Gross Gross Gross

Turnover Profit Turnover Profit Turnover Profit

HK$’000 HK$’000 HK$’000 HK$’000 % %

IT business

Manufacturing of

electronic products 252,815 45,657 263,772 44,962 (4.2) 1.5

Distribution of

electronic products 1,227,922 73,154 976,834 71,924 25.7 1.7

Internet cafe chain 8,123 7,199 5,906 4,148 37.5 73.6

1,488,860 126,010 1,246,512 121,034 19.4 4.1

Healthcare products business 1,499,191 935,722 1,129,029 622,988 32.8 50.2

2,988,051 1,061,732 2,375,541 744,022 25.8 42.7

IT Business

During the year under review, the overall turnover of IT business increased by 19.4% to HK$1,489 million as compared with

last year, and represented 49.8% of the Group’s total turnover. The contributions from manufacturing of electronics products,

distribution of electronics products and internet cafe chain were 17.0%, 82.5% and 0.5% respectively. Overall, the gross profit

of the IT business increased by only 4.1% and resulted in a drop of the gross profit margin by 1.2% to merely 8.5% from the

corresponding period of last year. Due to fierce competition, distribution costs increased continuously, resulting in operating

loss of HK$17.51 million for the IT business, which was a significant decline when compared with the operating profit of

HK$983 million of the corresponding period last year.

14



Electronic Products Manufacturing

The turnover and gross profit of the Group’s self-produced electronic products decreased by 4.2% and increased by 1.5%

respectively as compared with the corresponding period last year, details are as follows:–

Increase/ Increase/


Gross Gross Gross


HK$’000 HK$’000 HK$’000 HK$’000 % %

Manufacturing of electronic products

Printers 213,695 29,910 206,802 29,723 3.3 0.6

Gold tax and tax control products 23,895 16,012 32,874 17,617 (27.3) (9.1)

Others 15,225 (265) 24,096 (2,378) (36.8) (88.8)

252,815 45,657 263,772 44,962 (4.2) 1.5

Sales of Stone printer increased slightly during the year, and performed well amongst various products in IT businesses. The

sales accounted for 84.5% of the turnover from the manufacturing of electronic products segment and 7.1% of the Group’s

total turnover. Stone printer’s sales increased by 3.3% to HK$214 million, while gross margin was maintained at about the same

level as the corresponding period of last year. Besides benefiting from the robust China economy, the Group’s printer division

realised the market demand and understands the needs of customers and made continuous improvement to Stone printer,

so that our dot matrix printers are superior to competitors’ products. The Group sold a total of 62,000 invoice printers

during the year and which represented a significant market share in the PRC’s rural credit co-operatives and postal saving and

remittance markets.

During the year, the sales of gold tax products of the Group represented 9.5% of the turnover of the manufacturing of

electronic products segment and 0.8% of the Group’s turnover. Its sales decreased by 27.3% to HK$23.9 million as compared

with last year, while gross profit grew by 13.4%. The decrease in turnover was mainly attributable to government requirement

on taxpayers to upgrade their computers from DOS platform to Windows platform, therefore leading to significant increase

in the demand for gold tax products last year. The sales of tax control cash registers remained unsatisfactory during the year,

hence the management is considering to dispose of this business to reduce expenses of the Group.

15



The electronic products manufacturing segment also includes cer tain engineering projects and the manufacture of electronic

ballasts for fluorescent light, the sales of which contributed 6.0% of the turnover of the manufacturing of electronic products

segment and 0.5% of the Group’s total turnover. Its sales amounted to merely HK$15.23 million, a drop of 36.8% from the

turnover of the corresponding period of last year, while the gross loss was decreased by HK$2.11 million as compared with

last year. The decrease in turnover was mainly due to the planned cut back of the engineering project depar tment’s operation

by the Group during the year, which will be closed down upon completion of the last engineering project.

Electronic Products Distribution

The electronic products distribution business outperformed the electronic products manufacturing of the Group. Turnover and

gross profit increased by 25.7% and 1.7% respectively from last year and the details are as follows:

Increase/ Increase/


Gross Gross Gross


HK$’000 HK$’000 HK$’000 HK$’000 % %

Electronic products distribution

Industrial controllers 888,824 50,105 651,170 40,841 36.5 22.7

UPS equipments 57,236 2,891 81,099 3,980 (29.4) (27.4)

Digital graphic products 4,157 516 8,425 2,598 (50.7) (80.1)

Computer par ts and others 34,814 2,435 114,565 6,973 (69.6) (65.1)

Others 242,891 17,207 121,575 17,532 99.8 (1.8)

1,227,922 73,154 976,834 71,924 25.7 1.7

Industrial controllers remained the largest sources of income of this business segment, which accounted for 72.4% of the

turnover of the electronic products distribution segment, representing 29.7% of the Group’s total turnover. Although the

Group still dominates the industry, competition in the distribution of industrial controllers was very keen, and the daily

operation has been continuously undermined by strong competition from parallel imports so that operations become very

difficult. Management strove to improve the after-sale services since last year so as to enhance operation capacity, and has

set up numerous representative offices and branches in various provinces in the PRC to expand the service network. As the

Group has continued to implement the low gross margin strategy, the sales in industrial controllers rose remarkably during the

year and amounted to HK$889 million, representing an increase of 36.5% as compared with last year. However, gross profit

margin decreased by 0.7% to 5.6%.

16



Gross profit from the distribution of UPS product is low while the amount of capital tied up is huge, the management has

decided to discontinue the distribution of this product during the year. Hence, turnover in UPS equipments amounted to

HK$57.24 million, representing a decrease of 29.4% as compared with last year. This turnover accounted for 4.7% of the

turnover of the electronic products distribution segment and represented 1.9% of the total turnover of the Group, whereas

gross profit margin was about the same as last year.

Moreover, the Group has decided to cease selling digital graphic products, mainly due to the sales of Graphtec (日圖)

products imported from Japan under agency arrangement has always been unsatisfactory. The Group found that there is no

way to make a breakthrough despite our strenuous effor ts in the past two years, which not only brought no profit to the

Group but increase the Group’s outgoings and expenditures. During the year, the Group has scaled down the sales of this

product, the turnover of which accounted for only 0.3% of the turnover of the electronic products distribution segment and

0.1% of the Group’s total turnover. The turnover of these products amounted to only HK$4.16 million, representing a decrease

by 50.7% from the same period last year and a sharp decrease of 18.4% in gross profit.

Electronic products distribution also includes the sales of semi-conductor, computer par ts, computer application software, the

manufacture of electronic lighting equipment, electrical ancillary, health equipment and control system for automatic doors, etc..

For the year ended 31 March 2008, the turnover of these products amounted to HK$278 million, accounted for 22.6% of the

turnover of the electronic products distribution segment and represented 9.3% of the Group’s total turnover. This represented

an increase of 17.6% as compared to last year and the gross profit margin was approximately 7.1%.

Internet Cafe Chain

Since the management implemented changes in the mode of operation last year, performance of the internet cafe chain has

improved significantly. Turnover increased by 37.5% from last year, amounting to HK$8.12 million, while gross profit margin

went up by 18.4% as compared with the corresponding period last year. Moreover, the internet cafe chain has made a profit

for the first time since commencement of business in early 2004, and contributed operating profit to the Group, amounting

to HK$2.11 million. As at year-end date, the number of internet cafe chain shops reached 78 with more than 15,600 terminals

installed, while the daily computer users in the shops exceeded 70,000.

17



Healthcare Product Business

For the year ended 31 March 2008, the turnover of healthcare products business reached HK$1,499 million, representing

50.2% of the Group’s total turnover. This was the first time that turnover of healthcare products accounted for more than a

half of the Group’s total turnover since the acquisition the business in 2004. Turnover increased by 32.8% from last year while

gross profit margin increased by 7.2% to 62.4% as compared with last year. The sharp increase in sales was mainly attributable

to the robustness of the overall China economy, which increased the purchasing power of Chinese nationals and extended the

overall consumption power in the healthcare product’s market. Together with changes in sales strategies and marketing tactics

such as launching equipment in marketing promotion, the turnover surged accordingly. The principal reason behind the increase

in gross profit was an agreement reached between the supplier of Naobaijin and the Group at the end of last year whereby it

was decided to reallocate the scope of adver tising expenses to be borne by the par ties for mutual benefits to reduce the tax

burden. Also the supplier lowered its selling price of Naobaijin to reduce our direct costs. Details of the turnover and gross

profit of healthcare products business categorised by products are as follows:–

Increase/ Increase/


Gross Gross Gross


HK$’000 HK$’000 HK$’000 HK$’000 % %

Healthcare products business

Naobaijin 865,423 511,792 699,827 332,543 23.7 53.9

GoldPar tner 622,497 416,251 424,165 286,845 46.8 45.1

Huang Jin Xue Kang 11,271 7,679 5,037 3,600 123.8 113.3

1,499,191 935,722 1,129,029 622,988 32.8 50.2

Naobaijin

During the year, sales of Naobaijin was vast, and reached HK$865 million, representing 57.7% of the turnover of healthcare

products business and 29.0% of the Group’s total turnover. The sales represented an increase of 23.7% over the turnover

of the corresponding period last year and the gross profit margin was 59.1%. As mentioned above, gross profit margin rose

11.6% as compared with the last year, which contributed the gross profit of HK$512 million to the Group. Although 2007

was the tenth year since the launch of Naobaijin, however, the management continues to exer t great effor ts in innovating

sales strategies. During the year, the new model of tri-packed Naobaijin was introduced for the high end market, which in

turn provided more choices for consumers. As a result, Naobaijin once again became the champion of the National Sales of

Healthcare Products in the PRC. This is the seventh time Naobaijin was accredited this honour in the past eight years since

2000. The accumulated sales of Naobaijin in the past ten years exceeded RMB 10 billion and the popularity of this product

with consumers is widespread. Naobaijin itself represents a legend and consequently is the leading and superior brand name

the healthcare product market.

18



GoldPartner

During the year, the turnover of GoldPar tner increased rapidly to HK$622 million, which accounted for 41.5% of the

turnover of healthcare products business segment, and represent 20.8% of the Group’s total turnover, an increase of 46.8%

over the same period last year. The outstanding increase in turnover mainly resulted from the success in the sales strategy

of the product, which was extended from the original gift market to the functional market. During the year, GoldPar tner for

gentlemen was introduced and the product’s market share was expanded. In 2007, GoldPar tner maintained its position among

the top three sellers of the National Sales of Healthcare Products in the PRC for 5 consecutive years. GoldPar tner’s gross

profit margin was approximately the same as last year, at about 66.9%, and it contributed gross profit of HK$416 million to the

Group.

Huang Jin Xue Kang

At the beginning of 2006, the Group commenced the pilot launch of Huang Jin Xue Kang which is a vitamin supplement that

reduces blood lipids. Within the shor t span of two years, we have achieved moderate success. With continuous building of the

image of the product as the “young blood” with consumers, turnover of the Huang Jin Xue Kang rose significantly by 123.8%

to HK$11.27 million, while gross profit margin was 68.1%, contributing gross profit of HK$7.68 million to the Group.

Investment Business

For the year ended 31 March 2008, the Group still held 2,502,274 shares in SINA, representing approximately 4.6% of its

issued shares, the value of the investment was approximately HK$686 million. Compared with the market value as at the end

of last year, the unrealised profit contributed by SINA to the Group for the year was HK$29.16 million, which accounted for

HK$14.87 million profit attributable to equity shareholders after minority interests.

Besides the shareholding in SINA, the Group also invested in China Railway Erju A shares. After the expiry of the lock-up

period of those A shares, the Group star ted to dispose of some of them since mid February this year. As at the end of the

year, the Group has sold a total of 3,001,692 A shares in China Railway Erju at an average price of RMB 18.92 per A share,

and resulted in a realised gain of HK$22.67 million. As China Railway Erju implemented 2007 profit appropriation plan and the

issue of bonus shares through the capitalisation of the capital reserve of China Railway Erju on the basis of 3 bonus shares

and 3 conversion shares for every 10 shares, the Group held 24,275,556 A shares in China Railway Erju as at the date of this

repor t.

During the period under review, the Group, together with cer tain investment par tners, introduced new investment par tners

for CCMG, and made additional investment totaling US$29 million, of which US$7 million was contributed by the Group. After

the capital injection, the Group held 36.12% of CCMG. As at year-end date, CCMG held 33.3% of the shareholding in China

Cable Network Co., Ltd (“CCN”). CCN is engaged in national-wire cable television network services, and operates cable

networks in 18 cities in affluent coastal areas in China. It has a customer base about 3 million, and is one of the largest cable

television operators in China.

19



Besides shareholdings in the above internet network and cable television networks, the Group also held shares in Cayman

MTY, a company holds 100% shares in Beijing MTY. Beijing MTY is principally engaged in mobile communication and position

information value-added services. As Cayman MTY incurred a loss in 2006, the original vendor had to compensate the

Group and another investor according to the profit guarantee provision included in the original share purchase agreement.

After negotiation, the original vendor transferred 9% shareholdings to the Group at nil consideration in August last year,

which increased shareholdings in Cayman MTY held by the Group to 49%. In addition, the original vendor granted an option

to the Group at US$1 by which the original vendor will assign 3.8% shareholdings in Cayman MTY to the Group at nil

consideration. The option can be exercised within five years by the Group. Beijing MTY’s performance in last year was not

satisfactory. However, the potential of its operation is immense, together with its co-operation with multi-national corporations

in providing automobile GPS services and the GPS navigators developed by Beijing MTY have passed official mandatory

product cer tification in China during the year and have been launched officially by the end of 2007, the management has great

confidence in that company.

Besides the above investments, the Group has grasped oppor tunity to utilise surplus funds and par ticipated in other

investment activities. As a strategic investment, the Company invested US$5 million in a bio-chemical company through private

equity in October 2007. In addition, we successfully increased our investment of approximately RMB60 million in a real estate

project in Shandong in November 2007, increasing the shareholdings from the original 15% to 47.62%. The project is located

in Daming Lake region, Jinan City, Shandong Province. The total costs of the project is about RMB560 million, the management

expects this project will contribute satisfactory return to the Group upon completion.

LIQUIDITY AND FINANCIAL POSITION

As at the year end, the current ratio of the Group was 1.89 and the quick ratio was 1.74. Cash and cash equivalents held was

HK$553 million, equity attributable to equity shareholders of the Company increased from HK$2,393 million at the beginning

of the year to HK$2,716 million at the year end, reflecting that the financial position of the Group was very healthy.

At the end of the year, the Group’s conver tible notes amounted to HK$404 million, which decreased by HK$156 million

from the amount outstanding at the beginning of the year. The main reason was conver tible notes with par values of HK$135

million and HK$42 million were conver ted into the Company’s shares in May and September last year respectively. According

to HKAS 39, all conver tible notes are split into liability and equity components at initial recognition. The liability component is

subsequently carried at amortised cost. The equity component is recognised in other reserves until the relevant conver tible

note is conver ted or redeemed. The Group’s conver tible notes bear interest at 4% p.a. and the accrued interest will be

subsequently carried at amortised cost.

Those conver tible notes of HK$404 million comprised par value of HK$162 million conver tible notes with an interest at 3% at

a conversion price of HK$0.52 per share and HK$252 million conver tible notes at par value with nil interest at a conversion

price of HK$0.76 per share.

20



In addition, a subsidiary of the Company engaged in the healthcare product business obtained a bank loan of RMB100 million

and the additional shor t term bank loan of HK$5 million granted last year has been repaid in accordance with the repayment

schedule during the year.

Due to the above factors, the aggregate interest-bearing bank loans and other loans of the Group rose to HK$869 million as

at 31 March 2008, which increased 24.2% from the opening balance, the ratio of net borrowings to total equity attributable to

equity shareholders of the Company increased to 32%.

As at 31 March 2008, the Group has HK$485 million banking facilities available which included letters of credit facilities,

overdrafts and other standby credit. The Group had utilised approximately HK$464 million of its credit facilities. The Group

believes that its internal funds and the existing banking facilities are sufficient to satisfy the Group’s capital investment and

working capital requirements in the second half of the year.

CHARGES ON ASSETS

As at 31 March 2008, the Group had pledged a building with carrying value of approximately HK$36.91 million as collateral

against the banking facilities, bank term loan and overdrafts granted to the subsidiaries of the Group. In addition, par t of the

SINA shares held by the Group had been pledged to a securities company against a margin loan of US$40 million granted to

the Group.

CONTINGENT LIABILITIES

As at 31 March 2008, the Group had no material contingent liabilities.

HEDGING

Most of the purchases of the Group are from overseas, it is the Group’s policy to enter into foreign exchange forward

contracts to hedge against foreign exchange risks as and when necessary.

HUMAN RESOURCES

As at 31 March 2008 the Group had a total of 8,283 (2007: 9,862) employees, of which 8,259 (2007: 9,834) were employed in

the PRC and 24 (2007: 28) were employed in Hong Kong. Out of the 8,259 employees, 6,023 (2007: 7,613) were temporary

staff.

Besides basic salary and bonus, employees are entitled to staff benefits such as medical allowances. Employees in Hong Kong

and in the PRC have par ticipated in the mandatory provident fund and the Central Pension Scheme and the supplementary

defined contribution retirement plans managed by independent insurance company respectively. Moreover, cer tain employees

are granted share options as incentives.

21



BUSINESS PROSPECT

There has been relatively significant improvements in the IT business at the end of the year, the management has decided

to close down three depar tments that failed to achieve profitability in the coming year. The Group has ceased to carry on

the business of intelligent construction engineering, the distribution of UPS product and graphic products. Looking forward,

the Group is able to concentrate its resources in the sales of industrial controllers, printers, gold tax products and computer

application softwares and with effor ts to achieve improved results in these four areas. In addition, internet cafe chain star ted

to contribute profit to the Group last year. The management is actively looking into ways to expand its scope of operation

beyond Guangdong Province. After expanding the scale of internet cafe operation, we will have increased bargaining power to

enter into alliance with adver tising companies or internet game operators to increase the source of income and enhance the

overall profitability of internet cafes chain.

As for healthcare products, the management believes that the sales strategies and promotion tactics of last year were very

effective. In the coming year, the Group will continue to use the same strategy to ensure steady growth in the sales of

Naobaijin and GoldPar tner. Sales of Huang Jin Xue Kang that was introduced to the market two years ago will gradually be

expanded to the whole country. As the base figure of sales in last year was relatively low, it is believed that the sales of Huang

Jin Xue Kang will multiply by folds in the coming year. In addition, the management is carrying out research and development

on new products in the hope to utilise the huge and readily penetrable market that has been built up in healthcare product

business to generate more profits for the Group.

Regarding investment business, the Group has star ted to sell shares in SINA after the year end, as at the date of this repor t, a

total of 1,518,974 shares in SINA was sold at an average price of US$46.00 per share and the Group received total proceeds

of US$69.29 million. Disposal of A shares in China Railway Erju will be considered when the A shares stock market rebound

to more desirable level.

Growth in the operation of CCN in the past two years has been satisfactory, the management believes that performance of

CCN will continue to be good by acquisition of new regional cable television operators and the organic growth in subscribers.

Although Cayman MTY did not perform satisfactorily over the past two years, but with the official launch of MTY

communication navigation equipment in the market, plus the 95190 communication navigation nation-wide service platform

established by the company to provide integrated information service to vehicle drivers, it is believed that the company will

definitely be able to make turnaround and generate profit in the future.

As for the proper ty project in Shandong, the management believes that the project will be completed in 2009. Depending on

the market sentiment at the time, the Group will decide whether to lease or sell those proper ties. As for mineral resources

business, in view of the current co-operation intention, the management will consider negotiating with Stone Resources

Limited in relation to the transfer of exploration rights from Stone Resources Limited, it is possible that we shall enter into

the operation of mineral resources business in the second half of the year in an attempt to provide higher returns for our

shareholders.

22


REPORT OF THE DIRECTORS

The directors of Stone Group Holdings Limited (the “Company”) and its subsidiaries (the “Group”) have pleasure in submitting

their annual repor t together with the audited financial statements for the year ended 31 March 2008 (“the Year”).

PRINCIPAL ACTIVITIESThe principal activity of the Company is investment holding. The principal activities and other par ticulars of its principal

subsidiaries are set out in note 43 on the financial statements.

The Group’s turnover is derived principally from the manufacturing, distribution and sale of healthcare products, electronic and

electrical products, office equipment and the provision of related services, and the operation of media-related business.

The Group operates primarily in the People’s Republic of China (“PRC”) where its existing manufacturing facilities and

distribution network are based. The Group’s activities in Hong Kong include the sourcing of electronic and electrical products,

office equipment and component par ts for processing, distribution and sale in the PRC.

SEGMENTAL INFORMATIONAn analysis of the Group’s turnover and contributions from operations by business segments for the Year is set out in note 15

on the financial statements. No analysis of the Group’s turnover and contributions from operations by geographical segment

has been presented as almost all the Group’s operating activities are carried out in the PRC.

MAJOR CUSTOMERS AND SUPPLIERSFor the Year, the five largest customers in aggregate accounted for less than 10% of the Group’s turnover. The five largest

suppliers in aggregate and the largest supplier of the Group accounted for approximately 62% (year ended 31 March 2007:

68%) and 23% (year ended 31 March 2007: 26%) respectively by value of the Group’s total purchases.

At no time during the Year have the directors of the Company (“Directors”), their associates or any shareholder of the

Company (which, to the knowledge of the Directors, owns more than 5% of the Company’s share capital) had any interests in

such major customers and suppliers.

RESULTS AND APPROPRIATIONSThe results of the Group for the Year and the state of the Company’s and the Group’s affairs as at 31 March 2008 are set out

in the financial statements on pages 48 to 134.

No interim dividend was paid during the Year (2007: Nil). The Directors do not recommend the payment of a final dividend

for the Year (2007: HK1.3 cents).

SHARE CAPITALDetails of the Company’s share capital are set out in note 32 on the financial statements.

TRANSFER TO RESERVESProfits attributable to equity shareholders of the Company HK$16,503,000 (2007: HK$134,333,000) have been transferred to

reserves. Other movements in reserves are set out in note 33 on the financial statements.

23



PROPERTY, PLANT AND EQUIPMENTMovements in proper ty, plant and equipment during the Year are set out in note 17 on the financial statements.

BANK LOANS AND OTHER BORROWINGSPar ticulars of bank loans and other borrowings of the Group as at 31 March 2008 are set out in notes 27 and 28 on the

financial statements.

FIVE YEAR FINANCIAL SUMMARYA summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on page 135.

CONVERTIBLE SECURITIES, OPTIONS, WARRANTS OR SIMILAR RIGHTSSave as disclosed in the sections entitled “Directors’ Interests or Shor t Positions in Shares, Underlying Shares and Debentures”,

“Share Option Scheme” and “Substantial Shareholders’ Interests or Short Positions in Shares and Underlying Shares” below and

save for the par ticulars of conver tible notes of the Group as at 31 March 2008 set out in note 30 on the financial statements,

the Company had no other outstanding options, conver tible securities, warrants or other similar rights as at 31 March 2008

and there were no other repurchases or exercises of options and conver tible securities during the Year.

DIRECTORSThe Directors during the Year and up to the date of this repor t were:

Executive directors

DUAN Yongji (Chairman and Chief Executive Officer)

SHI Yuzhu

SHEN Guojun

ZHANG Disheng (Chief Operation Officer)

CHEN Xiaotao

LIU Wei

Non-executive director

CHENG Fumin (appointed on 4 October 2007)

Independent non-executive directors


Andrew Y. YAN

LIU Ji

LIU Jipeng

24



In accordance with ar ticle 101 of the Company’s ar ticles of association, Messrs. ZHANG Disheng, CHEN Xiaotao and LIU

Ji and Ms. LIU Wei will retire by rotation from the board at the for thcoming annual general meeting and being eligible but

only Messrs. ZHANG Disheng and CHEN Xiaotao offer themselves for re-election. Mr. LIU Ji and Ms. LIU Wei will not offer

themselves for re-election.

The Board recommends Mr. LIU Zuowei for election as a new Director to fill up the vacated office resulted from the

retirement of Ms. LIU Wei as Director at the for thcoming annual general meeting.

A resolution proposed not to fill up the vacated office resulted from the retirement of Mr. LIU Ji as Director will be put to the

for thcoming annual general meeting.

In accordance with ar ticle 92 of the Company’s ar ticles of Association, Mr. CHENG Fumin will retire by rotation from the

board at the for thcoming annual general meeting and being eligible, offers himself for re-election.

Mr. DUAN Yongji will retire from the board at the for thcoming annual general meeting on a voluntary basis, and being eligible,

offers himself for re-election.

The Company has received annual confirmation from each of the independent non-executive Directors as regards their

independence to the Company and considers that each of the independent non-executive directors is independent to the

Company.

DIRECTORS’ SERVICE CONTRACTSMessrs. DUAN Yongji and SHEN Guojun, the Executive Directors, entered into director’s service contracts with the Company

on 23 July 1993, all of which are for a term of 3 years and will continue thereafter until terminated by either par ty to the

contracts at 6 month written notice.

Mr. CHENG Fumin, the Non-Executive Director, entered into director’s service contract with the Company for a period of 3

year term until terminated by either par ty of the contract at 3 month written notice.

Messrs. NG Ming Wah, Charles, Andrew Y. YAN, LIU Ji and LIU Jipeng, the Independent Non-Executive Directors, entered into

director’s service contracts with the Company, all of which are for a period of 3 years term until terminated by either par ty to

each of the contracts at 1 month written notice.

No director proposed for re-election at the for thcoming annual general meeting has an unexpired service contract with

the Company or any of its subsidiaries which is not determinable by the Company or any of its subsidiaries within one year

without payment of compensation, other than normal statutory compensation.

25



DIRECTORS’ INTERESTS OR SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURESThe Directors who held office at 31 March 2008 had the following interests or shor t positions in the shares, underlying shares

and debentures of the Company or associated corporations (within the meaning of Par t XV of the Securities and Futures

Ordinance (“SFO”)) at that date as recorded in the register of directors’ and chief executives’ interests and shor t positions

required to be kept under section 352 of the SFO or required to be notified to the Company and The Stock Exchange of

Hong Kong Limited (“Stock Exchange”) pursuant to Divisions 7 and 8 of Par t XV of the SFO or required to be notified to the

Company pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of

the Listing Rules (the “Model Code”):

Interest in

underlying

shares of equity

derivatives of Interest in

the Company underlying

pursuant to shares of equity

share option derivatives of

(being granted the Company

Nature of Number and remained pursuant to Approximate

Name of director interests of shares outstanding) convertible notes Aggregate interest shareholding

(Note 3)

DUAN Yongji Personal (Note 1) 104,357,845 15,000,000 125,000,000 244,357,845 (L) 12.79

SHEN Guojun Personal (Note 1) – 4,000,000 – 4,000,000 (L) 0.20

CHEN Xiaotao Personal (Note 1) – 4,000,000 – 4,000,000 (L) 0.20

ZHANG Disheng Personal (Note 1) – 6,000,000 – 6,000,000 (L) 0.31

SHI Yuzhu Corporate (Note 2) 55,263,157 5,000,000 331,578,947 391,842,104 (L) 20.52

LIU Wei Personal – 3,000,000 – 3,000,000 (L) 0.15

LIU Jipeng Personal – 2,000,000 – 2,000,000 (L) 0.10

CHENG Fumin Personal – 1,000,000 – 1,000,000 (L) 0.10

NG Ming Wah, Charles Personal 1,000,000 2,000,000 – 3,000,000 (L) 0.15

Andrew Y. YAN Personal – 2,000,000 – 2,000,000 (L) 0.10

LIU Ji Personal – 2,000,000 – 2,000,000 (L) 0.10

L denotes Long Position

26



Notes:

(1) Beijing Stone Investment Company Limited together with its associates (as defined in the Listing Rules) holds a total of 407,110,053

shares in the Company. Beijing Stone Investment Company Limited is owned as to 42.3% by Stone Jiu Guang New Technology

Development (Holdings) Co. Ltd., 6.7% by Stone Group Corporation (“SGC”) and 51% by the Beijing Stone Investment Company

Limited Employees’ Shareholdings Society. In addition, SGC indirectly holds 92,374,413 shares in the Company (through Wise Expand

Developments Limited which is a limited company incorporated in Hong Kong and beneficially owned by SGC) and directly holds

1,062,000 shares in the Company. Messrs. DUAN Yongji, SHEN Guojun, CHEN Xiaotao and ZHANG Disheng (collectively as the

“said Directors”) are also directors of SGC. So long as the said Directors remain as directors of SGC, each of them together with

the other employees collectively own interests in the assets of SGC but none of them has any specific interests in SGC. Moreover,

Mr. DUAN Yongji is the holder of the conver tible notes of the Company in the aggregate principal sum of HK$65 million which are

conver tible into shares of the Company at the conversion price of HK$0.52 per share.

(2) The interest is held by Ready Finance Limited (“Ready Finance”) as beneficial owner. Ready Finance is wholly owned by Mr. SHI Yuzhu

who is deemed under the SFO to be interested in the shares and underlying shares of equity derivates of the Company held by

Ready Finance. The interest in underlying shares of equity derivatives of the Company pursuant to share options granted to Mr. SHI

Yuzhu is beneficially owned by him.

(3) The number of issued ordinary shares of the Company as at 31 March 2008 (“31 March 2008 Issued Share Capital”) is 1,909,281,738

and is applied to calculate the relevant percentage.

Save as disclosed herein and in the sections entitled “Share Option Scheme” and Substantial Shareholders’ Interests or Shor t

Positions in the Shares, Underlying Shares and Debentures”, to the knowledge of the Company, none of the Directors and the

chief executives of the Company had any interests or shor t positions in the shares, underlying shares or debentures of the

Company or its associated corporations, as recorded in the register required to be kept under section 352 of the SFO or as

otherwise notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Par t XV of the SFO or required

to be notified to the Company pursuant to the Model Code.

DIRECTORS’ INTERESTS IN CONTRACTSExcept for the Shareholders Agreement was entered into among Seasource Holdings Limited (a company wholly owned by Mr.

DUAN Yongji (Chairman and Chief Executive Officer)), the Company and the six independent third par ties on 18 June 2007,

no contracts of significance to which the Company, any of its holding companies, subsidiaries or fellow subsidiaries was a par ty

and in which a director of the Company had a material interest, subsisted at the end of the Year or at any time during the Year.

SHARE OPTION SCHEMEThe Company has adopted a share option scheme on 12 April 2002 (“the Scheme”). The purpose of the Scheme is to

encourage the par ticipants to perform their best in achieving the goals of the Group and at the same time allow the

par ticipants to enjoy the results of the Company attained through their effor t and contribution. Par ticipants include any

employee, director, supplier of goods or services, adviser (professional or otherwise) or consultant to any area of business

or business development of the Company or any of its subsidiaries or associated companies as absolutely determined by the

directors of the Company.

27



SHARE OPTION SCHEME (Continued)The Directors may, at their discretion, invite any par ticipant to take up options. An option is deemed to have been accepted

by the grantee upon his or her signing the duplicate letter comprising acceptance of the option and paying HK$1 by way of

consideration for the grant thereof.

The subscription price for shares in the Company under the Scheme will be the highest of (i) the closing price of the shares

of the Company as stated in the Stock Exchange on the date on which the option is offered, which date must be a business

day, (ii) a price being the average of the closing prices of the shares of the Company as stated in the Stock Exchange’s daily

quotations sheets for the five business days immediately preceding the option is offered, and (iii) the nominal value of a share

of the Company.

The total number of shares of the Company which may be issued upon exercise of all options to be granted under the

Scheme and any other share option schemes of the Company must not in aggregate exceed 10% of the total number

of shares of the Company in issue as at the date of approval of the Scheme. The Company may seek approval of the

shareholders in general meeting to renew the said 10% limit such that the total number of shares in respect of options that

may be granted under the Scheme or any other share option schemes of the Company shall not exceed 10% of the total

number of shares of the Company in issue as at the date of approval to renew the limit. Notwithstanding the above, the

maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised

under the Scheme and any other share options schemes of the Company shall not exceed 30% of the total number of shares

of the Company in issue from time to time.

The maximum entitlement for any one par ticipant is that the total number of shares issued and to be issued upon exercise of

the options granted to each par ticipant (including exercised or outstanding options) in any 12-month period must not exceed

1% of the total number of shares of the Company in issue. Any fur ther grant of options in excess of the said 1% limit shall

be subject to shareholders’ approval in general meeting with such par ticipant and his or her associates abstaining from voting.

An option may be exercised during a period to be determined by the directors in its absolute discretion and in any event

such period shall not be longer than 10 years after the date of the grant of the option. The Scheme will remain in force for a

period of 10 years from 12 April 2002.

On 2 November 2006, it was conditionally approved by the Board at its meeting to change the exercise period from 10 years

to 5 years which mentioned in the Share Option Scheme and that the revised Share Option Scheme was adopted by the

Board in its meeting dated 22 January 2007.

The total number of shares of the Company available for issue under the Scheme as at 31 March 2008 was 21,406,000 shares

of the Company, which represented 1.12% of the issued share capital of the Company at 31 March 2008.

28



SHARE OPTION SCHEME (Continued)At 31 March 2008, the directors and employees of the Group had the following interests in options to subscribe for shares of

the Company. Each option gives the holder the right to subscribe for one share of the Company:

Name Outstanding at 1.4.2007

Grantedduring

the Year

Exercisedduring

the Year

Lapsed During

the Year Outstanding at 31.3.2008

Date of grant

Exercisable period

Exercise price

Closing immediately

preceding the date of grant

Weighted average

closing price of shares

immediately before

exercise date % of the

total issuedHK$ HK$ HK$ (Note h)

DUAN Yongji Note a 3,900,000 – – 3,900,000 – 22–5–2002 22–5–2002 to 21–5–2007

0.792 0.78 N/A –

Note f – 15,000,000 – – 15,000,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 0.81

SHEN Guojun Note a 4,000,000 – – 4,000,000 – 22–5–2002 22–8–2002to 21–5–2007

0.792 0.78 N/A –

Note f – 4,000,000 – – 4,000,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 0.21

CHEN Xiaotao Note b 8,000,000 – – 8,000,000 – 22–5–2002 22–5–2002to 21–5–2007

0.792 0.78 N/A –

Note f – 4,000,000 – – 4,000,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 0.21

ZHANG Disheng Note c 10,400,000 – – 10,400,000 – 22–5–2002 22–5–2002to 21–5–2007

0.792 0.78 N/A –

Note f – 6,000,000 – – 6,000,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 0.32

SHI Yuzhu Note f – 5,000,000 – – 5,000,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 0.27

LIU Wei Note f – 3,000,000 – – 3,000,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 0.16

CHENG Fumin Note g – 1,000,000 – – 1,000,000 16–11–2007 16–11–2007to 15–11–2012

0.852 0.84 N/A 0.05


Note g – 2,000,000 – – 2,000,000 16–11–2007 16–11–2007to 15–11–2012

0.852 0.84 N/A 0.10

Andrew Y. YAN Note g – 2,000,000 – – 2,000,000 16–11–2007 16–11–2007to 15–11–2012

0.852 0.84 N/A 0.10

LIU Ji Note g – 2,000,000 – – 2,000,000 16–11–2007 16–11–2007to 15–11–2012

0.852 0.84 N/A 0.10

LIU Jipeng Note g – 2,000,000 – – 2,000,000 16–11–2007 16–11–2007to 15–11–2012

0.852 0.84 N/A 0.10

Contracted Employees

Note d 48,056,000 – – 48,056,000 – 22–5–2002 22–5–2002to 21–5–2007

0.792 0.78 N/A –


Note e 83,856,000 – 83,856,000 – – 31–12–2002 31–12–2002to 30–12–2007

0.476 0.44 0.869 –


Note f – 78,200,000 – – 78,200,000 21–8–2007 21–8–2007to 20–8–2012

0.714 0.71 N/A 4.25

29



SHARE OPTION SCHEME (Continued)Notes:

(a) The options granted to these grantees shall be exercisable in the following four batches (the “Vesting Period”):

(i) Not more than 25% of options granted exercisable from 22-08-2002 to 21-08-2003;

(ii) Not more than 50% of options granted exercisable from 22-08-2003 to 21-08-2004;

(iii) Not more than 75% of options granted exercisable from 22-08-2004 to 21-08-2005; and

(iv) Free to exercise from 22-08-2005 to 21-05-2007.

(b) Free to exercise 4,000,000 options from 22-05-2002 to 21-05-2007 and the remaining 4,000,000 options are subject to the Vesting

Period set out in Note (a).

(c) Free to exercise 5,000,000 options from 22-05-2002 to 21-05-2007 and the remaining 5,400,000 options are subject to the Vesting


(d) Free to exercise 8,356,000 options from 22-05-2002 to 21-05-2007 and the remaining 39,700,000 options are subject to the Vesting


(e) Free to exercise 83,856,000 options from 31-12-2002 to 30-12-2007.

(f) The options granted to these grantees shall be exercisable in the following three batches:


(ii) Not more than 75% of options granted exercisable from 21-08-2008 to 20-08-2009; and

(iii) Free to exercise from 21-08-2009 to 20-08-2012.

(g) The options granted to these grantees shall be exercisable in the following three batches:


(ii) Not more than 75% of options granted exercisable from 16-11-2008 to 15-11-2009;

(iii) Free to exercise from 16-11-2009 to 15-11-2012.

(h) 31 March 2008 Issued Share Capital is applied to calculate the relevant percentage.

30



SHARE OPTION SCHEME (Continued)The consideration paid by each of the above Directors and employees for the share options granted was HK$1.

On 21 August 2007, 37,000,000 share options and 78,200,000 share options were granted for the consideration of HK$1 to

the executive Directors and employees of the Company, respectively under the Share Option Scheme (no share options were

granted during the year ended 31 March 2007). Each option gives the holder the right to subscribe for one share of HK$0.1

each of the Company. These share options shall be exercisable in the following three batches:

(i) Not more than 50% of these share options exercisable from 21 August 2007 to 20 August 2008;

(ii) Not more than 75% of these share options exercisable from 21 August 2008 to 20 August 2009; and

(iii) Free to exercise from 21 August 2009 to 20 August 2012.

The exercise price of these share options is HK$0.714, being the average closing price of the Company’s shares for the five

business days immediately preceding the date of grant.

On 16 November 2007, 1,000,000 share options and 8,000,000 share options were granted for the consideration of HK$1 to

the non-executive Director and independent non-executive Directors; respectively under the Share Option Scheme (no share

options were granted during the year ended 31 March 2007). Each option gives the holder the right to subscribe for one

share of HK$0.1 each of the Company. These share options shall be exercisable in the following three batches:

(i) Not more than 50% of these options exercisable from 16 November 2007 to 15 November 2008;

(ii) Not more than 75% of these share options exercisable from 16 November 2008 to 15 November 2009;

(iii) Free to exercise from 16 November 2009 to 15 November 2012.

The exercise price of these share options is HK$0.852, being the average closing price of the Company’s shares for the five

business days immediately preceding the date of grant.

31



SHARE OPTION SCHEME (Continued)Grant of the share options to the executive Directors and the relevant employees of the Company on 21 August 2007

Closing share price immediately preceding the date of grant HK$0.71 per share

Exercise price of share option HK$0.714 per share

Expected volatility (based on the annualised historical volatility of the closing price

of the shares of the Company for the past five years to the date of the grant) 50.71%

Expected life (in years) 5 years

Risk-free interest rate 4.15%

Expected dividend yield 1.59%

Grant of the share options to the non-executive Director and the independent non-executive Directors on 16 November

2007

Closing share price immediately preceding the date of grant HK$0.84 per share

Exercise price of share option HK$0.852 per share

Expected volatility (based on the annualised historical volatility of the closing price

of the shares of the Company for the past five years to the date of the grant) 52.01%

Expected life (in years) 5 years

Risk-free interest rate 3.08%

Expected dividend yield 1.67%

During the year, save as disclosed above, no option was granted, exercised and cancelled pursuant to the Share Option

Scheme.

MANAGEMENT CONTRACTSPursuant to an agreement dated 24 September 2003 between the Company and SGC, the latter agreed to provide, inter alia,

secretarial and other related services and the use of office equipment to the Group for a term of five years commencing

from 23 July 2003 at reimbursement costs which shall not exceed HK$3,500,000 per annum. Details of the aforesaid

agreement are also disclosed in the section entitled “Connected Transactions” below.

Save as disclosed in the section entitled “Connected Transactions” below and other related par ty transactions during the year

as set out in note 38 on the financial statements, no contracts of significance were entered into or subsisted between the

Company or its subsidiaries and the Company’s controlling shareholders or its subsidiaries during the Year.

32



SUBSTANTIAL SHAREHOLDERS’ INTERESTS OR SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARESAs at 31 March 2008, to the best knowledge of the Directors, the following par ties who have interests or shor t positions in

the shares or underlying shares of the Company as recorded in the register kept by the Company under

section 336 of the SFO:

Interests in the shares and underlying shares of the Company:

Name Nature of

interest Interest

in shares

Interest in underlying

shares of equity derivatives of the Company

pursuant to share options

(being granted and remained outstanding)

Interest in underlying

shares of equity derivatives of the Company

pursuant to the convertible notes

Aggregate Interests

Approximate shareholding

percentage (Note 6)

Beijing Stone Investment Company Limited

Corporate(Note 1)

407,110,053 – – 407,110,053 (L) 21.32

Beijing Stone Investment Company Limited Employees’ Shareholding Society

Corporate (Note 2)

407,110,053 – – 407,110,053 (L) 21.32

Stone Jiu Guang New Technology Development (Holdings) Co. Ltd.

Corporate (Note 2)

407,110,053 – – 407,110,053 (L) 21.32

Shenyang Heguang Group Co. Ltd

Corporate (Note 2)

407,110,053 – – 407,110,053 (L) 21.32

SGC Corporate (Note 2)

500,546,466 – – 500,546,466 (L) 26.21

深圳發展銀行深圳人民橋支行

Corporate (Note 3)

310,000,000 – – 310,000,000 (L) 16.23

Ready Finance Corporate (Note 4)

55,263,157 – 331,578,947 386,842,104 (L) 20.26

DUAN Yongji Personal (Note 5)

104,357,845 15,000,000 125,000,000 244,357,845 (L) 12.79

SHI Yuzhu Corporate (Note 4)

55,263,157 5,000,000 331,578,947 391,842,104 (L) 20.52

L denotes Long Position

33



SUBSTANTIAL SHAREHOLDERS’ INTERESTS OR SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES (Continued)Notes:

1. The shareholding of 407,110,053 shares comprised the combined shareholdings of Beijing Stone Investment Company Limited and its

associates (as defined in the Listing Rules).

2. Beijing Stone Investment Company Limited is owned as to 42.3% by Stone Jiu Guang New Technology Development (Holdings) Co.

Ltd., 6.7% by SGC and 51% by Beijing Stone Investment Company Limited Employees’ Shareholding Society which are accordingly

deemed to be interested in the said 407,110,053 shares. Stone Jiu Guang New Technology Development (Holdings) Co. Ltd. is owned

as to 56.14% by Shenyang Heguang Group Co. Ltd., which is accordingly also deemed to be interested in the said 407,110,053 shares.

In addition, SGC also beneficially held 92,374,413 shares indirectly (through Wise Expand Developments Limited) and 1,062,000

shares directly. Wise Expand Developments Limited is a company with limited liability incorporated in Hong Kong and beneficially

owned by SGC.

3. The interest of 深圳發展銀行深圳人民橋支行 is held by it as person having a security interest in shares.

4. The interest of Ready Finance is held by it as beneficial owner. Please also refer to Note 2 on page 26.

5. The interest of DUAN Yongji is held by him as beneficial owner. Please also refer to Note 1 on page 26.

6. 31 March 2008 Issued Share Capital is applied to calculate the relevant percentage.

Saved as disclosed above, the Company has not been notified of any other interests or shor t positions in the shares and the

underlying shares of the Company as recorded in the register of substantial shareholders maintained under section 336 of the

SFO as at 31 March 2008.

34



CONNECTED TRANSACTIONS(a) On 10 March 1999, Beijing Stone New Technology Industrial Company Limited (“Beijing New Technology”) ( a

subsidiary of the Company) and SGC, a controlling shareholder of the Company, entered into an agreement (the “I/

E Agreement”), pursuant to which Beijing New Technology appointed SGC to act as its agent to deal with all import

procedural matters during the year 1999. Details of the I/E Agreement are set out below and have been published in

the Company’s announcement dated 17 December 1999:

Services to be provided: Arrangement for shipment of goods from Hong Kong to the PRC and for remittance

of the price of the goods to Hong Kong for Beijing New Technology by Stone Group

Corporation Import and Export Company (“Stone I/E”) as directed by SGC

Term: for the year 1999 and renewable on annual basis thereafter

Handling fee: 1.3% of the costs of goods for every shipment of goods arranged by Stone I/E provided

that the annual aggregate handling fee shall not exceed HK$5,000,000, or 3% of the net

tangible assets of the Company as shown in its latest published audited consolidated

financial statements.

(b) On 24 September 2003, SGC and the Company entered into a service agreement (the “Service Agreement”),

pursuant to which SGC agreed to provide the Group with general services as directed by the board of directors of

the Company from time to time in connection with the business and operations of the Group. Details of the Service

Agreement are set out below and have published in the Company’s announcement dated 10 December 2003:

Services to be provided: provision of management staffing services for the overall management, administration

and control of the business of the Group; provision of the company secretarial services;

dispatch of documents and materials as the Company may request for distribution to

its shareholders and/or warrantholders and related preparations and arrangements;

provision of office machines, facilities and equipment; and provision of public relation

services (collectively, the “Services”)

Purpose of the transaction: more economical and cost-effective for the Group to engage SGC to perform the

Services

Term: 5 years commenced on 23 July 2003 and expired on 22 July 2008 (both days inclusive)

Service Fee: on reimbursement basis of not more than HK$3,500,000 per annum

Negotiation between SGC and the Company as to the terms of the renewal of the Service Agreement (including the

annual cap) is still going on.

35



CONNECTED TRANSACTIONS (Continued)(c) On 18 June 2007, the Shareholders’ Agreement was entered into among, inter alios, the Company, six independent

third par ties and Seasource Holdings Limited, being a company established in the British Virgin Islands and wholly

owned by Mr. DUAN Yongji, the chairman of the Company (being an associate of a connected person of the Company)

for the purpose of regulating the operation and management of Stone Resources Limited, a joint venture company

established in Hong Kong to engage in mineral resources exploration in the middle East region, Africa and other

countries and other ancillary business, whose total issued capital is HK$60,000,000 divided into 60,000,000 shares of

HK$1 each, 16.67% of which was issued to the Company, 20% of which was issued to Seasource Holdings Limited and

the remaining 63.33% of which was issued to the six independent third par ties.

The transaction contemplated by the Shareholders’ Agreement constitutes a non-exempt connected transaction for

the Company which is only subject to the reporting and announcement requirements under the Listing Rules but

without requiring independent shareholders’ approval. Details of the Shareholders’ Agreement were disclosed in the

announcement of the Company dated 18 June 2007.

Other material related par ty transactions entered by the Group during the Year are set out in note 38 on the financial

statements.

ANNUAL REVIEW OF CONTINUING CONNECTED TRANSACTIONSThe transactions contemplated under the I/E Agreement and the Service Agreement constitute continuing connected

transactions of the Company under the Listing Rules.

The independent non-executive directors of the Company had reviewed the transactions contemplated under the I/E

Agreement and the Service Agreement for the Year (collectively, the “Transactions”) and confirmed that the Transactions

were entered into:

(a) in the ordinary and usual course of business of the Group;

(b) on normal commercial terms; and

(c) in accordance with the terms of each of the I/E Agreement and the Service Agreement that are fair and reasonable

and in the interests of the shareholders of the Company as a whole.

The auditors of the Company had reviewed the Transactions and reported that:

(a) the Directors have approved the Transactions;

(b) the Transactions have been entered into in accordance with the terms of each of the I/E Agreement and the Service

Agreement; and

(c) the Transactions have not exceed the annual caps as disclosed in the subsections (a) and (b) of the section entitled

“Connected Transactions” above.

36



PURCHASE, SALE AND REDEMPTION OF THE COMPANY’S LISTED SECURITIESDuring the Year, cer tain shares in the Company were repurchased by the Company on the Stock Exchange and those shares

were subsequently cancelled by the Company. Details of the share repurchases are set out in note 32 on the financial

statements.

Save as disclosed above, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the

Company’s listed securities.

PROPERTIESPar ticulars of the major proper ties and proper ty interests of the Group are shown on page 136 of the annual repor t.

RETIREMENT SCHEMESPar ticulars of the retirement schemes of the Group are set out in note 14 on the financial statements.

PUBLIC FLOATBased on the information that is publicly available to the Company and within the knowledge of its directors, as at the date

of this repor t, there is sufficient public float of not less than 25% of the Company’s issued shares as required under the Listing

Rules.

REVIEW BY AUDIT COMMITTEEThe audit committee of the Company comprises four independent non-executive directors, namely, Messrs. NG Ming Wah,

Charles, Andrew Y. YAN, LIU Ji and LIU Jipeng. The audit committee has reviewed the audited financial statements for the Year

and has also discussed auditing, internal control and financial repor ting matters including the review of accounting practices

and principles by the Group.

AUDITORSThe financial statements have been audited by Messrs. KPMG who retire and, being eligible, offer themselves for reappointment.

A resolution for the reappointment of Messrs. KPMG as auditors of the Company is to be proposed at the for thcoming annual

general meeting.

There is no change in auditors of the Company in the past 3 years.

On behalf of the Board

DUAN Yongji

Chairman

Hong Kong, 22 July 2008

37


DIRECTORS AND SENIOR MANAGEMENT BIOGRAPHIES

EXECUTIVE DIRECTORSMr. DUAN Yongji, aged 62, appointed in March 1992, is the Chairman and Chief Executive Officer of the Group and the

Chairman of Stone Group Corporation. Mr. DUAN graduated from Tsinghua University and was a research student at Beijing

Aeronautic College. He held a senior position at Chinese Aeronautical Research 621 Laboratory from 1982 until 1984. In

1995, Mr. DUAN was acclaimed “Beijing Electronics Industry Outstanding Entrepreneur”. In 1996, Mr. DUAN was acclaimed

“The Top 20 Outstanding Managers” in Industrial System, Beijing. In 2000, Mr. DUAN was acclaimed “2000 Bauhinia Cup

Outstanding Entrepreneur Awards”. Mr. DUAN is a director of Fairchild Investments Limited, a company listed on the NEX

board of Toronto Stock Exchange venture market in Canada. Mr. DUAN was the past director and general manager of Beijing

Centergate Technologies (Holding) Co. Ltd. (“Centergate”), a company listed on Shenzhen Stock Exchange and also the past

director of SINA Corporation, a company listed on NASDAQ, United States of America.

Mr. SHI Yuzhu, aged 46, appointed in August 2004, is the Executive Director of the Company. Mr. SHI was the Chief Executive

Officer of the Company from August 2004 to March 2007. Mr. SHI graduated from Zhejiang University in 1984 with a Bachelor

degree in Mathematics. He was also a research student from Shenzhen University in Software Science in 1989. Mr. SHI began

his career in 1989 by engaging in software development, and later established Giant Group. In 1993, he was awarded with

a special reward under the major reward of the 2nd anniversary of science and technology in Zhuhai City. In 1994, Mr. SHI

was elected as one of the China’s Top 10 Reform Celebrities. In late 1997, he embarked on a new business venture with the

development of Naobaijin, a technologically-advanced healthcare product. Naobaijin won the championship of nationwide sales

of healthcare products in China for 4 consecutive years star ting from 2000. In 2001, Mr. SHI was honored as one of the CCTV

Chinese Economic Leaders and the Top 10 Chinese Financial Figures. He launched another innovative healthcare product

GoldPar tner in 2002. In 2004, GoldPar tner and Naobaijin were ranked No. 1 and No. 2 on the list for nationwide sales of

healthcare products. He was recognized as an Outstanding Scientific Entrepreneur for Private Entities in China and received

the Bauhinia Cup Awards for Outstanding Entrepreneur. Mr. SHI is also the director of China Minsheng Banking Corp., Ltd., a

company listed on the Shanghai Stock Exchange and the managing director of Giant Interactive Group Inc, a company listed

on the New York Stock Exchange.

Mr. SHEN Guojun, aged 73, appointed in December 1992, is the Executive Director of the Company. He is also the Chairman

of Beijing Stone Investment Company Limited (“Stone Investment”). Mr. SHEN graduated from Beijing University where he

held a teaching post until 1965. During the period between 1965 and 1984, Mr. SHEN had several senior positions in National

Science Research Ninth Council and Chinese Science College Science Technology Office. Mr. SHEN is a director of Fairchild

Investments Limited, a company listed on the NEX board of Toronto Stock Exchange venture market in Canada.

Mr. ZHANG Disheng, aged 52, appointed in May 2003, is the Executive Director of the Company. Mr. ZHANG is the President

of Beijing Stone New Technology Industrial Company Limited, a subsidiary of the Group, and is also the President of Beijing

Stone Investment Company Limited. Mr. ZHANG has also been appointed as the Chief Operation Officer of the Company

since March 2008. Mr. ZHANG graduated from 北京經濟學院 (Beijing Economics College) and obtained a Master degree

from 日本流通經濟大學 (Ryulsu Kaizai University, Japan). Mr. ZHANG held a senior position in 北京經濟學院經濟技術開發

總公司 (Beijing Economics College Economic Technology Development Company) prior to joining the Group. Mr. ZHANG is

responsible for the business management of the Group. Mr. ZHANG is a director of Fairchild Investments Limited, a company

listed on the NEX board of Toronto Stock Exchange venture market in Canada.

38



EXECUTIVE DIRECTORS (Continued)Mr. CHEN Xiaotao, aged 50, appointed in May 2001, is the Executive Director of the Company. Mr. CHEN was the President

and Chief Operating Officer of the Company from May 2001 to December 2004. He was the General Manager of 四通集團

公司進出口分公司 (Stone Group Corporation Import and Export Company) and 北京四通電工營銷有限公司 (Beijing Stone

Electrical Marketing Company Limited) prior to joining the Company. Mr. CHEN is responsible for the investment in media-

related business of the Group. Besides, he was also a director of SINA Corporation, a company listed on NASDAQ, the United

States of America.

Ms. LIU Wei, aged 40, appointed in March 2004, is the Executive Director of the Company and was the General Manager

of Shanghai GoldPar tner Biotech Co., Ltd. from March 2004 till December 2007, a subsidiary of the Group. Ms. LIU was

the General Manager of Shanghai Jiante Biotech Co., Ltd. prior to joining the Group. Ms. LIU is also the director of Giant

Interactive Group Inc., a company listed on the New York Stock Exchange.

NON-EXECUTIVE DIRECTORMr. CHENG Fumin, aged 63, appointed in October 2007, the Non-Executive Director of the Company. Mr. CHENG graduated

from the Central South University (formerly known as Zhongnan Metallurgics College), majoring in geology. Prior to joining

the Company, he previously held senior positions in a number of companies, government bodies and industry organization

including the former General Manager of the China National Gold Group Corporation, the former general manager of

Administration of Gold of State Economic & Trade Commission of China, vice-director of geology bureau of the Ministry of

Metallurgical Industry of China and the former president of China Gold Association. Mr. CHENG has extensive knowledge

and is experienced in the exploration and development of the mineral resources. Moreover, he previously held the office of

directorship in the relevant government bureau.

INDEPENDENT NON-EXECUTIVE DIRECTORSMr. NG Ming Wah, aged 58, appointed in September 2004, is an Independent Non-Executive Director of the Company and

has since acted as the chairman of the audit committee. Mr. NG graduated from Loughborough University in England in 1972

with a Bachelor of Science degree in Electrical and Electronic Engineering and from the London Graduate School of Business

Studies (London Business School) in England in 1974 with a Master of Science degree in Business Studies. Mr. NG is a director

of Somerley Limited, the principal business of which is the provision of corporate financial advisory services. Mr. NG has over

25 years of experience in corporate finance and investment banking. Mr. NG is also a non-executive director of Goldlion

Holdings Limited (stock code: 533); and an independent non-executive director of each of China Everbright Limited (stock

code: 165), Dalian Por t (PDA) Company Limited (stock code: 2880) and China Molybdenum Co., Ltd. (stock code: 3993). In

addition, Mr. NG holds a number of community service positions, including as a member of the Council of Lingnan University

of Hong Kong and a member of the Board of Governors of the Hong Kong Arts Centre.

39



INDEPENDENT NON-EXECUTIVE DIRECTORS (Continued)Mr. Andrew Y. YAN, aged 51, appointed in June 2001, is an Independent Non-Executive Director of the Company. He is the

Managing Par tner of SB Asia Investment Fund II and Softbank Asia Infrastructure Fund (SAIF). Mr. YAN received a Master

degree in Sociology and Economics from Beijing University in 1986 and a second Master’s degree from Princeton University

in the United States in 1989. He obtained his Bachelor degree in Engineering from the Nanjing Aeronautic Institute in the

PRC. Mr. YAN was the managing director and head of the Hong Kong office of the Emerging Markets Par tnership from 1995

until 2001. From 1994 to 1995, Mr. YAN worked at Sprint International Corporation as the director of Strategic Planning

and Business Development for the Asia Pacific Region. Under Mr. YAN’s leadership, SAIF’s investment in Shanda Interactive

Enter tainment (SNDA) has been named “the Investment of the Year” by China Venture Capital Industry in 2003. SAIF was

voted as “VC Firm of the Year” and Mr. YAN was elected as “Venture Capitalist of the Year” in 2004 by Chinese Venture Capital

Association. Mr. YAN is currently a governor of the Chinese Venture Capital Association, an independent director of Eastern

Communications Co., Ltd, a company listed on Shanghai Stock Exchange and is also an Independent Non-Executive Director

of China Oilfield Services Ltd (Stock Code: 2883), FoSun International Limited (Stock Code: 656) and China Resources Land

Limited (Stock Code: 1109), all of which are listed on The Stock Exchange of Hong Kong and also an independent non-

executive director of Giant Interactive Group Inc, a company listed on the New York Stock Exchange and a director of China

Digital TV Holdings Co. Ltd., a company listed on the New York Stock Exchange.

Mr. LIU Ji, aged 72, appointed in May 2005, is an Independent Non-Executive Director of the Company. He graduated from

TsingHua University, Beijing. He is now the Research Fellow and Member of Academic Board of Chinese Academy of Social

Sciences and the Honourable Chairman of China Europe International Business School. He is also acted as the President of

Shanghai Academy of Management Sciences, the Chairman of China Mobile Communications Association, etc. He is currently

the independent non-executive director of First Shanghai Investments Limited.

Mr. LIU Jipeng, aged 52, appointed in April 2006, is an Independent Non-Executive Director of the Company. He graduated

from the Industrial Economic Depar tment of the Graduate School of Chinese Academy of Social Sciences with a Master

degree in Economics. Mr. LIU is a professor of China University of Political Science and Law, and a mentor of the graduate

students of the Research Institute for Fiscal Science, the Ministry of Finance of the PRC. He has acted as a consultant of the

municipal government of each of Tianjin, Chengdu and Nanning, and the former State Power Corporation. He was also a

member of the legal exper t group for the PRC enterprises to be listed in Hong Kong and a committee member of the 7th

– 8th of All-China Youth Federation. He was an exper t member of the Amendment Committee for Securities Law under

the National People’s Congress (“NPC”). He is now a member of the Drafting Committees of NPC for State-owned Assets

Law and Futures Transaction Law respectively. Mr. LIU is specialized in implementing the theories of demutualization, group

engineering and internationalization in sized corporations. He is a well-known exper t in the theories of demutualization, group

engineering and internationalization in size corporations. He is a well-known exper t in demutualization and solving company

problems. In the past ten years, he acted as a leader in almost 200 shareholding structure, listing and management consultancy

projects for different kind of enterprises. Since August 2004, Mr. LIU has been an Independent Non-Executive Director of

Huaneng Power International, Inc (Stock Code: 902), a company listed in Hong Kong, the PRC and the United States.

40



SENIOR MANAGEMENTMr. LIU Yong, aged 57, is the Vice President of Beijing New Technology and Stone Investment. Mr. LIU graduated from Shaanxi

Engineering College and held a senior position in Wuhan Engineering Research Centre prior to joining the Group. Mr. LIU is

responsible for printer business of the Group.

Mr. LU Fang, aged 50, is the Vice President of Beijing New Technology and Stone Investment. Mr. LU graduated from Aeronautic

and Aerospace University of Beijing. Mr. Lu held a senior position in 北京航空材料研究所 (Beijing Aeronautical Materials

Research Laboratory) prior to joining the Group. Mr. LU is responsible for the electronic commercial product business of the

Group.

Mr. PAN Qi, aged 49, is the Vice President of Beijing New Technology and Stone Investment. Mr. PAN graduated from Postal

and Telecommunication University of Beijing. Mr. PAN held a senior position in an electronic instrument plant in Beijing prior

to joining the Group. Mr. PAN is responsible for industrial controllers business of the Group.

Mr. LIU Zuowei, aged 40, is the General Manager of Shanghai GoldPar tner Biotech Co. Ltd., a subsidiary of the Group. Mr. LIU

graduated from Shandong University of Science and Technology, majoring in English. Prior to joining the Group, he held senior

position in Giant Group. He is responsible for the business of healthcare products of the Group.

Ms. CHENG Chen, aged 33, is the Deputy General Manager of the Business Development Depar tment of Shanghai

GoldPar tner Biotech Co. Ltd. Ms. CHENG graduated from International Relations Institute of the People’s Liberation Army,

majoring in English, and is currently pursuing an EMBA degree at Cheung Kong Graduate School of Business. Prior to joining

the Group, Ms. CHENG is the vice-president of Giant Group. Ms. CHENG is responsible for branding and business strategy for

Naobaijin and GoldPar tner, two of the principal products of Shanghai GoldPar tner Biotech Co. Ltd.

41


CORPORATE GOVERNANCE REPORT

Stone Group Holdings Limited and its subsidiaries (the ”Group”) are committed to maintaining a high standard of corporate

governance practices. The board of directors of the Company (the “Board”) believes that good corporate governance practices

are increasingly important for maintaining and promoting investor confidence. Following the issue of the Code on Corporate

Governance Practices (the “Code”), as set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock

Exchange (the “Listing Rules”), the Board reviews its corporate governance practices from time to time to ensure that they

meet the expectation of the public and the shareholders of the Company (the “Shareholders”), comply with the requirement

of the Code.

For the year ended 31 March 2008, except for the requirement that the roles of chairman of the Board and Chief Executive

Officer of the Company (“CEO”) should be separate and should not be performed by the same individual (code provision

A.2.1), the Company has complied with the other code provisions of the Code.

CODE FOR SECURITIES TRANSACTIONS BY DIRECTORSThe Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix

10 of the Listing Rules (the “Model Code”) as the code for securities transactions by the Directors. The Company has made

specific enquiry of all Directors and has received a written confirmation from each Director confirming that he/she has

complied with the Model Code for the year ended 31 March 2008 in relation to his/her securities dealings, if any. To enhance

its corporate governance, the Company has also established a written guideline on no less exacting terms than the Model

Code for the senior management of the Company (other than the Directors) and the employees of the Group, who may be

in possession of unpublished price-sensitive information.

CORPORATE GOVERNANCE STRUCTUREThe Board has put in place a corporate governance structure for the Company and is primarily responsible for setting

directions, formulating strategies, monitoring performance and managing risks of the Group. Under the Board, there are

currently 3 board committees, namely Audit Committee, Remuneration Committee and Investment Committee. All these

committees perform their distinct roles in accordance with their respective terms of reference.

BOARD OF DIRECTORSThe Board currently comprises 11 Directors, including 6 Executive Directors (including Mr. DUAN Yongji (“Mr. DUAN”) who

is the Chairman of the Board); one Non-Executive Director ; and 4 Independent Non-Executive Directors (“INEDs”). All the

INEDs and the Non-Executive Director are appointed for a specific term and subject to the retirement and re-appointment

provisions of the Articles. Details of all Directors are disclosed in “Directors and Senior Management” section of this annual

repor t. To the best knowledge of the Company, there are no financial, business, family or other material/relevant relationships

amongst members of the Board.

Pursuant to Rules 3.10(1) and (2) of the Listing Rules, the Company has appointed not less than three INEDs and at least one

of them has the appropriate professional qualifications or accounting or related financial management exper tise.

A written confirmation was received from each of the INEDs, namely, Messrs. NG Ming Wah, Charles (“Mr. NG”), Andrew Y.

YAN (“Mr. YAN”), LIU Ji and LIU Jipeng, confirming their independence pursuant to Rule 3.13 of the Listing Rules.

42



For the year ended 31 March 2008, other than resolutions passed by means of resolutions in writing of all Directors, six (6)

full Board meetings were held. Notice of at least 14 days is usually given of a regular Board meeting to give all Directors an

opportunity to attend, otherwise, consent to shor t notice will be obtained from all directors. The following table shows the

attendance records of individual Directors at the full Board meetings and the attendance records of individual members at

the meetings of the Audit and the Remuneration and the Investment Committees held for the year ended 31 March 2008

respectively:

Number of meetings attended / Number of meetings

held for the year ended 31 March 2008

Designation and name Full Board

Audit

Committee

Remuneration

Committee

Investment

Committee

Executive Director and Chairman and

Chief Executive Officer

DUAN Yongji 5/6 N/A* N/A* 1/1

Executive Directors

SHI Yuzhu 5/6 N/A* N/A* 1/1

SHEN Guojun 6/6 N/A* N/A* N/A*

ZHANG Disheng 6/6 N/A* 2/2 1/1

CHEN Xiaotao 6/6 N/A* N/A* 0/1

LIU Wei 5/6 N/A* 2/2 N/A*

Non-Executive Director

Cheng Fumin 1/1# N/A* N/A* N/A*

Independent Non-executive Directors

NG Ming Wah, Charles 6/6 2/2 2/2 N/A*

Andrew Y. YAN 4/6 0/2 2/2 1/1

LIU Ji 0/6 2/2 2/2 N/A*

LIU Jipeng 5/6 2/2 N/A* N/A*

* “N/A”: Not applicable# appointed in October 2007

To enhance better communication with the Directors as to the business transacted at the full Board meetings, the final version

of the minutes of each full Board meeting was provided to the Directors.

In addition, the Company has maintained a set of procedures for its Directors to seek independent professional advice, in the

process of discharging their duties to the Company when necessary, at the Company’s expenses and also arranged liability

insurance coverage for the Directors and officers of the company.

43



CHAIRMAN AND CHIEF EXECUTIVE OFFICERThe roles of the chairman of the Board and the CEO of the Company are assumed by Mr. DUAN. On 1 March, 2007, Mr.

SHI Yuzhu (“Mr. SHI”) resigned as CEO of the Company due to his commitment to his own investment businesses kept on

increasing and he foresaw that he would not be able to allocate sufficient time to take care of all of the Company’s affairs.

Mr. SHI considered the resignation is a more proper arrangement to avoid any unfavorable impact to the future growth

of the Company’s overall businesses. Mr. SHI will still act as an Executive Director and focus his time to the healthcare

products business of the Company. Concurrently, the Board, having considered that the non-segregation would not result

in concentration of power in one person and has the advantage of a strong and consistent leadership which is conducive

to making and implementing decisions quickly and consistently, Mr. DUAN’s management experience in, and his extensive

knowledge of, the Group, unanimously agreed to appoint him to act as CEO of the Company with effect from the same date.

The primary role of the Chairman of the Board is to provide leadership for the Board and to ensure that it works effectively

in the discharge of its responsibilities. The CEO is responsible for the day-to-day management of the Group’s business. Their

respective roles and responsibilities are set out in writing and have been approved by the Board. As mentioned above, the

roles of Chairman and the CEO have been performed by Mr. DUAN, pending the finding of suitable candidate for the position

of CEO by the Board and when the Board thinks appropriate, the above roles will be separately discharged by different

persons in the future.

BOARD COMMITTEESThe Board has established Board committees, namely Audit Committee, Remuneration Committee and Investment Committee

to oversee par ticular aspects of the Company’s affairs and to assist in sharing the Board’s responsibilities. The Board has

reserved for its decision or consideration on matters covering corporate strategy, annual and interim results, changes

of members of the Board and its committees, major acquisitions, disposals and capital transaction, and other significant

operational and financial matters. All the Board committees have clear written terms of reference and have to report to the

Board regularly on their decisions and recommendations. The day-to-day running of the Company, including implementation

of the strategies and plans adopted by the Board and its committees, is delegated to the management with divisional heads

responsible for different aspects of the business.

A. Audit Committee

The Audit Committee currently comprises Mr. NG, Mr. YAN, Mr. LIU Ji and Mr. LIU Jipeng, who are all INEDs. Mr. NG is

the Chairman of the Audit Committee. In line with its terms of reference approved by the Board, the Audit Committee

is principally responsible for, inter alia, providing independent review of the effectiveness of the financial repor ting

procedures and the internal control system of the Group; reviewing the appointment of independent auditors and the

efficiency and quality of their work.

The major tasks accomplished by the Audit Committee for the year ended 31 March 2008 are as follows:

a. reviewed and submitted the consolidated financial statements of the Group for the year ended 31 March 2007

and the auditors’ repor t thereon to the Board;

44



b. reviewed the unaudited consolidated financial statements of the Group for the six months ended 30 September

2007 based on the review conducted by the Group’s external auditors in accordance with Hong Kong Standard

on Review Engagements 2410 “Review of interim financial information performed by independent auditor of

the entity” issued by the Hong Kong Institute of Cer tified Public Accountants, as well as obtaining reports from

the management of the Group;

c. reviewed the management recommendations furnished by the external auditors and the responses from the

Group’s management;

d. reviewed the accounting principles and practices adopted by the Group;

e. assisted the Board in conducting independent evaluation of the effectiveness of the Group’s financial repor ting

procedures and internal control system; and

f. furnished its opinion to the management of the Group concerning related risks in respect of significant matters

of the Group.

B. Remuneration Committee

In line with its terms of reference approved by the Board, the role and function of the Remuneration Committee is,

inter alia, to review and discuss the policy and package for the remuneration of the Directors and senior management,

and to establish and maintain a set of transparent procedures for determining the remuneration of such persons.

The Remuneration Committee currently comprises Mr. YAN, Mr. NG, Mr. LIU Ji, Mr. ZHANG Disheng and Ms. LIU Wei.

Mr. YAN is the Chairman of the Remuneration Committee.

During the year ended 31 March 2008, the Remuneration Committee reviewed and discussed the level and package

of the remuneration of Executive Directors and members of senior management as well as the proposal on the level

of remuneration. The emoluments of the Directors are based on their respective responsibilities and their involvement

in the Group’s affairs and are determined by reference to the Group’s business condition and the prevailing market

practice.

C. Investment Committee

In line with its terms of reference approved by the Board, the Investment Committee is principally responsible for

perusing all the investment projects of the Group and to approve the projects with investment amount under HK$30

million.

45



The Investment Committee currently comprises Mr. DUAN, Mr. SHI, Mr. YAN, Mr. ZHANG Disheng and Mr. CHEN

Xiaotao. Mr. DUAN is the Chairman of the Investment Committee. During the year ended 31 March 2008, the

Investment Committee reviewed and perused the investment proposals provided by the operating subsidiaries, joint

venture companies and operating depar tments. After having thorough discussion, the Investment Committee approved

some investment proposals within their authority limit and submitted those proposals beyond their approval limit to

the Board for fur ther consideration.

D. Nomination of Directors

Although the Board has not established a nomination committee, the Board meets on a regular basis to:

a. review the composition and membership of the Board, inter alia, the length of services and the breadth of

exper tise of the Board as a whole;

b. identify and nominate to the Board suitable candidate(s) who possess(es) the exper tise which is relevant and

beneficial to the Group’s business; and

c. assess the independence of the Company’s INEDs.

Mr. CHENG Fumin was appointed non-executive Director on 4 October 2007.

DIRECTORS’ AND AUDITORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTSThe Directors acknowledged their responsibilities for the preparation of the financial statements for each financial period,

which give a true and fair view of the state of affairs of the Group and its results and cash flows for the relevant period. In

preparing the financial statements for the year ended 31 March 2008, the Directors ensured that the financial statements are

in accordance with statutory requirements and applicable accounting standards and have applied them consistently; made

judgments and estimates that are prudent and reasonable; and have prepared the financial statements on a going concern

basis. The Directors are also responsible for the timely publication of the financial statements of the Group.

The statement of the auditors of the Company, Messrs. KPMG, about their reporting responsibilities on the financial statements

of the Group is set out in the “Independent Auditor’s Report” section of this annual repor t.

The Directors confirm that, to the best of their knowledge, information and belief, having made all reasonable enquiries,

they are not aware of any material uncer tainties relating to events or conditions that may cast significant doubt upon the

Company’s ability to continue as a going concern.

AUDITORS’ REMUNERATION

For the year ended 31 March 2008, Messrs. KPMG, the external auditors of the Company, received approximately

HK$3,220,000 (2007: HK$2,770,000) for audit services, and approximately HK$550,000 (2007: HK$500,000) for non-audit

services, including fees for review of the Group’s interim financial repor t.

46



INTERNAL CONTROLSThe Board acknowledges its responsibilities for maintaining an adequate system of internal control and prompt and transparent

repor ting of the Group’s activities to the Shareholders and to the public. A review of the effectiveness of the system of

internal control of the Group has been conducted.

The Group’s internal audit depar tment is responsible for performing risk-driven audits to monitor and evaluate the Group’s

financial, operational and compliance controls and risk management on a regular or as-needed basis with the aim of ensuring

that the effectiveness of the internal control system of the Group is improving continuously. The work of the Group’s internal

audit depar tment was also reviewed by the Audit Committee from time to time.

The internal control system of the Company and its subsidiaries for the year ended 31 March 2008 was reviewed by the Audit

Committee from time to time.

CORPORATE COMMUNICATIONThe objective of shareholder’s communication is to provide our shareholders with detailed information about the Company so

that they can exercise their rights as shareholders in an informed manner.

The Company encourages two way communications with both its institutional and private investors. Extensive information

about the Group’s activities is provided in the Company’s annual repor ts, interim reports, various notices, announcements and

circular which have been sent to its Shareholders. Procedure for demanding voting by poll has been included in all circulars

accompanying notice convening general meeting and the detailed procedures for conducting a poll has been read out at

general meeting.

Press conferences are held on results announcement to explain the Group’s activities, performance and future plans and

to enable the public to better understand the Group. Besides, the Company arranged from time to time meet the press

luncheons and maintained its corporate website to disseminate the information relating to the Group and its business to the

public in order to foster effective communication.

47


INDEPENDENT AUDITOR’S REPORT

To the shareholders of Stone Group Holdings Limited(Incorporated in Hong Kong with limited liability)

We have audited the consolidated financial statements of Stone Group Holdings Limited (“the Company”) set out on pages 48 to 134, which comprise the consolidated and company balance sheets as at 31 March 2008, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTSThe directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Cer tified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error ; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit. This repor t is made solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this repor t.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Cer tified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINIONIn our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2008 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

KPMGCertified Public Accountants

8th Floor, Prince’s Building10 Chater RoadCentral, Hong Kong

22 July 2008

for the year ended 31 March 2008(Expressed in Hong Kong dollars)

48


CONSOLIDATED INCOME STATEMENT

2008 2007

Note $’000 $’000

Turnover 3 & 15 2,988,051 2,375,541

Cost of sales and services (1,926,319) (1,631,519)

Gross profit 1,061,732 744,022

Other revenue 4 27,589 23,218

Other net income 5 2,718 2,636

1,092,039 769,876

Distribution costs (777,569) (492,750)

Administrative expenses (183,784) (145,153)

Other operating expenses (54,534) (30,373)

Valuation gains on investment proper ties 16 14,462 6,744

Non-operating income 6 102,159 235,017

Finance costs 7(a) (34,462) (32,316)

Share of profits less losses of associates (14,696) (12,463)

Profit before taxation 7 143,615 298,582

Income tax 8(a) (80,821) (65,343)

Profit for the year 62,794 233,239

Attributable to:

– Equity shareholders of the Company 11 & 33(a) 16,503 134,333

– Minority interests 33(a) 46,291 98,906

Profit for the year 33(a) 62,794 233,239

Dividends payable to equity shareholders of the Company

attributable to the year: 12

Final dividend proposed after the balance sheet date – 23,192

Earnings per share 13

Basic 0.92 cent 8.62 cents

Diluted 0.87 cent 6.33 cents

The notes on pages 58 to 134 form par t of these financial statements.

at 31 March 2008(Expressed in Hong Kong dollars)

49


CONSOLIDATED BALANCE SHEET

2008 2007

Note $’000 $’000 $’000 $’000

Non-current assets

Fixed assets

– Investment proper ties 16 112,341 96,295

– Proper ty, plant and equipment 17(a) 162,101 142,669

274,442 238,964

Goodwill 18 1,136,614 1,136,614

Other intangible assets 19 34,294 33,328

Interest in associates 21 585,159 388,142

Other financial assets 22 55,590 44,294

Deferred tax assets 34(a) 14,647 7,241

2,100,746 1,848,583

Current assets

Trading securities 23 958,448 894,596

Inventories 24 190,905 193,220

Trade and other receivables 25 753,566 513,285

Cash and cash equivalents 26 553,022 477,202

2,455,941 2,078,303

Current liabilities

Bank loans 27 151,238 17,231

Other loan 28 311,240 117,210

Trade and other payables 29 376,351 286,660

Conver tible notes 30 318,184 –

Current taxation 8(b) 143,180 98,210

1,300,193 519,311

Net current assets 1,155,748 1,558,992

Total assets less current liabilities 3,256,494 3,407,575


50


CONSOLIDATED BALANCE SHEET (Continued)

2008 2007

Note $’000 $’000 $’000 $’000

Non-current liabilities

Bank loans 27 1,875 4,375

Conver tible notes 30 86,095 560,431

Deferred tax liabilities 34(a) 3,820 1,019

91,790 565,825

NET ASSETS 3,164,704 2,841,750

CAPITAL AND RESERVES 33(a)

Share capital 32 190,929 155,993

Reserves 2,525,400 2,236,560

Total equity attributable to equity shareholders

of the Company 2,716,329 2,392,553

Minority interests 448,375 449,197

TOTAL EQUITY 3,164,704 2,841,750

Approved and authorised for issue by the board of directors on 22 July 2008.

DUAN Yongji ZHANG Disheng

Director Director



51


BALANCE SHEET

2008 2007 Note $’000 $’000 $’000 $’000

Non-current assetsFixed assets– Investment proper ties 16 5,170 4,500– Proper ty, plant and equipment 17(b) 531 744

5,701 5,244Interest in subsidiaries 20 2,220,639 2,192,265Interest in associates 21 102,227 433Other financial assets 22 51,769 40,825

2,380,336 2,238,767Current assetsTrading securities 23 14,181 18,708Inventories 24 15,470 15,470Trade and other receivables 25 18,713 8,324Cash and cash equivalents 26 56,216 118,646

104,580 161,148

Current liabilitiesConver tible notes 30 318,184 –Trade and other payables 29 13,072 20,138

331,256 20,138

Net current (liabilities)/assets (226,676) 141,010

Total assets less current liabilities 2,153,660 2,379,777

Non-current liabilityConver tible notes 30 86,095 560,431

NET ASSETS 2,067,565 1,819,346

CAPITAL AND RESERVES 33(b)Share capital 32 190,929 155,993Reserves 1,876,636 1,663,353

TOTAL EQUITY 2,067,565 1,819,346

Approved and authorised for issue by the board of directors on 22 July 2008.

DUAN Yongji ZHANG Disheng

Director Director



52


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

2008 2007

Note $’000 $’000 $’000 $’000

Total equity at 1 April 2007/2006 2,841,750 2,555,854

Net income recognised directly in equity:

Exchange differences on translation of

the financial statements of foreign entities 33(a) 105,739 43,050

Capital reserve on shares repurchased 33(a) 80 667

Changes in fair value of available-for-sale securities 33(a) (120) 68

Net income directly recognised in equity 105,699 43,785

Transfer from equity:

Transfer to profit or loss on impairment of

available-for-sale securities 33(a) 52 –

105,751 43,785

Net profit for the year 33(a) 62,794 233,239

Total recognised income and expense for the year 168,545 277,024

Attributable to:

– Equity shareholders of the Company 111,457 176,080

– Minority interests 57,088 100,944

168,545 277,024

Dividend approved and paid during the year 33(a) (23,192) (12,533)


53


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

2008 2007

Note $’000 $’000 $’000 $’000

Dividends paid to minority shareholders 33(a) (57,162) (5,853)

Shares repurchased 33(a) (597) (2,808)

Movements in equity arising

from capital transactions:

Movements in share capital and share premium

– shares issued upon conversion

of conver tible notes 33(a) 168,299 29,127

– shares issued under share

option scheme 33(a) 39,905 –

– equity settled share-based

transactions 33(a) 27,984 –

– shares repurchased 32 (80) (667)

236,108 28,460

Share of minority interest in

additional interests in a

subsidiary 33(a) (748) –

Share of minority interest on

disposal of subsidiaries 33(a) – 1,606

235,360 30,066

Total equity at 31 March 3,164,704 2,841,750



54


CONSOLIDATED CASH FLOW STATEMENT

2008 2007

Note $’000 $’000 $’000 $’000

Operating activities

Profit before taxation 143,615 298,582

Adjustments for :

– Interest charges 32,137 30,276

– Interest income (5,818) (8,873)

– Dividend income (650) (380)

– Share of profits less losses of associates 14,696 12,463

– Amortisation and depreciation 18,162 15,104

– Gain on disposal of interest in subsidiaries – (6,536)

– Loss on deemed disposal of

interest in an associate 11,373 –

– Excess of interest in fair values of

the acquirees’ identifiable assets and

liabilities over cost of acquisition (1,915) (3,084)

– (Gain)/loss on disposal of fixed assets (2,592) 158

– Valuation gains on investment proper ties (14,462) (6,744)

– Net realised/unrealised gain

on trading securities (114,683) (247,238)

– Provision for impairment loss on

available-for-sale securities 52 –

– Reversal of impairment loss on proper ties (8,301) (6,000)

– Provision for impairment losses

on other receivables 11,312 27,899

– Equity settled share-based payment expenses 27,984 –

Operating profit before changes

in working capital 110,910 105,627


55


CONSOLIDATED CASH FLOW STATEMENT (Continued)

2008 2007

Note $’000 $’000 $’000 $’000

Decrease/(increase) in amounts due

from/to associates (net) 11,243 (30,993)

Decrease/(increase) in inventories 18,287 (39,325)

Increase in debtors, prepayments

and other receivables (286,557) (126,045)

Decrease in gross amount due

from customers for contract work 1,271 5,309

Decrease in pledged deposits – 145

Decrease in amounts due from

related companies 8,552 1,121

Increase/(decrease) in creditors,

accruals and other payables 71,042 (29,883)

Decrease in amounts due to related companies (5,796) (1,852)

Foreign exchange 2,032 (3,174)

(179,926) (224,697)

Cash used in operations (69,016) (119,070)

Tax paid:

– Hong Kong Profits Tax refunded – 24

– PRC tax paid (49,653) (3,099)

Interest received 5,818 8,873

(43,835) 5,798

Net cash used in operating activities (112,851) (113,272)


56



2008 2007

Note $’000 $’000 $’000 $’000

Investing activities

Disposal of interests in subsidiaries – 2,361

Purchase of fixed assets (25,348) (35,603)

Proceeds from sale of fixed assets 11,659 74

Purchase of investments (54,824) (120,324)

Proceeds from disposal of investments 78,045 156,841

Acquisition of associates (119,287) (84)

Dividends received 650 380

Net cash (used in)/generated

from investing activities (109,105) 3,645

Financing activities

Interest paid (19,825) (14,691)

Dividends paid (23,192) (12,533)

Dividends paid to minority shareholders (57,162) (5,853)

Expenses paid in connection with

share issues and conversion

of conver tible notes (176) (28)

Shares repurchased (597) (2,808)

Proceeds from shares issued under

share option scheme 39,905 –

New other loan 194,525 –

New bank loans 243,122 127,933

Repayment of bank loans (111,545) (109,175)

Net cash generated from/

(used in) financing activities 265,055 (17,155)


57



2008 2007

Note $’000 $’000 $’000 $’000

Net increase/(decrease) in

cash and cash equivalents 43,099 (126,782)

Effect on foreign exchange

rate changes 32,721 22,223

Cash and cash equivalents

at 1 April 2007/2006 477,202 581,761

Cash and cash equivalents

at 31 March 26 553,022 477,202


(Expressed in Hong Kong dollars)

58


NOTES ON THE FINANCIAL STATEMENTS

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting

Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting

Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute

of Cer tified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and

the requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the

applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong

Kong Limited. A summary of the significant accounting policies adopted by the Group (hereafter defined) is set

out below.

The HKICPA has issued cer tain new and revised HKFRSs that are first effective or available for early adoption

for the current accounting period of the Group and the Company. Note 2 provides information on any changes

in accounting policies resulting from initial application of these developments to the extent that they are

relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of preparation of the financial statements

The consolidated financial statements for the year ended 31 March 2008 comprise the Company and its

subsidiaries (together referred to as the “Group”) and the Group’s interest in associates.

The measurement basis used in the preparation of the financial statements is the historical cost basis except

that the following assets and liabilities are stated at their fair value as explained in the accounting policies set

out below:

– investment proper ties (see note 1(g)); and

– financial instruments classified as available-for-sale or as trading securities (see note 1(f)).

The preparation of financial statements in conformity with HKFRSs requires management to make judgements,

estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities,

income and expenses. The estimates and associated assumptions are based on historical experience and various

other factors that are believed to be reasonable under the circumstances, the results of which form the basis

of making the judgements about carrying values of assets and liabilities that are not readily apparent from other

sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates

are recognised in the period in which the estimate is revised if the revision affects only that period, or in the

period of the revision and future periods if the revision affects both current and future periods.


59



1 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Basis of preparation of the financial statements (Continued)

Judgements made by management in the application of HKFRSs that have significant effect on the financial

statements and estimates with a significant risk of material adjustment in the next year are discussed in note 41.

(c) Subsidiaries and minority interests

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern

the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control,

potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that

control commences until the date that control ceases. Intra-group balances and transactions and any unrealised

profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial

statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as

unrealised gains but only to the extent that there is no evidence of impairment.

Minority interests represent the por tion of the net assets of subsidiaries attributable to interests that are not

owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group

has not agreed any additional terms with the holders of those interests which would result in the Group as

a whole having a contractual obligation in respect of those interests that meets the definition of a financial

liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity

attributable to the equity shareholders of the Company. Minority interests in the results of the Group are

presented on the face of the consolidated income statement as an allocation of the total profit or loss for the

year between minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess,

and any fur ther losses applicable to the minority, are charged against the Group’s interest except to the extent

that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If

the subsidiary subsequently repor ts profits, the Group’s interest is allocated all such profits until the minority’s

share of losses previously absorbed by the Group has been recovered.

Loans from holders of minority interests and other contractual obligations towards these holders are presented

as financial liabilities in the consolidated balance sheet in accordance with notes 1(n), (o) or (p) depending on

the nature of the liability.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note

1(k)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held

for sale).


60




(d) Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint

control, over its management, including par ticipation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated financial statements under the equity method

and is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of

the associates’ net assets, unless it is classified as held for sale (or included in a disposal group that is classified

as held for sale). The consolidated income statement includes the Group’s share of the post-acquisition, post-

tax results of the associates for the year, including any impairment loss on goodwill relating to the investment in

associates recognised for the year (see notes 1(e) and (k)).

Where the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil

and recognition of fur ther losses is discontinued except to the extent that the Group has incurred legal or

constructive obligations or made payments on behalf of the associate. For this purpose, the Group’s interest

in the associate is the carrying amount of the investment under the equity method together with the Group’s

long-term interests that in substance form par t of the Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated

to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an

impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

In the Company’s balance sheet, its investments in associates are stated at cost less impairment losses (see note

1(k)), unless it is classified as held for sale (or included in a disposal group that is classified as held for sale).

(e) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate over the

Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units

and is tested annually for impairment (see note 1(k)). In respect of associates, the carrying amount of goodwill

is included in the carrying amount of the interest in the associate.

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and

contingent liabilities over the cost of a business combination or an investment in an associate is recognised

immediately in profit or loss.

On disposal of a cash generating unit, an associate during the year, any attributable amount of purchased

goodwill is included in the calculation of the profit or loss on disposal.


61




(f) Other investments in debt and equity securities

The Group’s and the Company’s policies for investments in debt and equity securities, other than investments

in subsidiaries, associates and jointly controlled entities, are as follows:

Investments in debt and equity securities are initially stated at cost, which is their transaction price unless

fair value can be more reliably estimated using valuation techniques whose variables include only data from

observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These

investments are subsequently accounted for as follows, depending on their classification:

Investments in securities held for trading are classified as current assets. Any attributable transaction costs

are recognised in profit or loss as incurred. At each balance sheet date the fair value is remeasured, with any

resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit or loss does

not include any dividends or interest earned on these investments as these are recognised in accordance with

the policies set out in note 1(u)(iv) and (v).

Investments in equity securities that do not have a quoted market price in an active market and whose fair

value cannot be reliably measured are recognised in the balance sheet at cost less impairment losses (see note

1(k)).

Investments in securities which do not fall into any of the above categories are classified as available-for-

sale securities. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being

recognised directly in equity, except foreign exchange gains and losses resulting from changes in the amortised

cost of monetary items such as debt securities which are recognised directly in profit or loss. Dividend income

from these investments is recognised in profit or loss in accordance with the policy set out in note 1(u)(iv)

and, where these investments are interest-bearing, interest calculated using the effective interest method is

recognised in profit or loss in accordance with the policy set out in note 1(u)(v). When these investments are

derecognised or impaired (see note 1(k)), the cumulative gain or loss previously recognised directly in equity is

recognised in profit or loss.

Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or

they expire.


62




(g) Investment properties

Investment proper ties are land and/or buildings which are owned or held under a leasehold interest (see note

1(j)) to earn rental income and/or for capital appreciation.

Investment proper ties are stated in the balance sheet at fair value. Any gain or loss arising from a change in

fair value or from the retirement or disposal of an investment proper ty is recognised in profit or loss. Rental

income from investment proper ties is accounted for as described in note 1(u)(iii).

When the Group holds a proper ty interest under an operating lease to earn rental income and/or for capital

appreciation, the interest is classified and accounted for as an investment proper ty on a proper ty-by-proper ty

basis. Any such proper ty interest which has been classified as an investment proper ty is accounted for as if it

were held under a finance lease (see note 1(j)), and the same accounting policies are applied to that interest

as are applied to other investment proper ties leased under finance leases. Lease payments are accounted for as

described in note 1(j).

(h) Other property, plant and equipment

Other proper ty, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and

impairment losses (see note 1(k)).

The cost of self-constructed items of proper ty, plant and equipment includes the cost of materials, direct labour,

the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on

which they are located, and an appropriate proportion of production overheads and borrowing costs (see note

1(w)).

Gains or losses arising from the retirement or disposal of an item of proper ty, plant and equipment are

determined as the difference between the net disposal proceeds and the carrying amount of the item and are

recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost or valuation of items of proper ty, plant and equipment, less their

estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

Leasehold land and buildings in Hong Kong over the shor ter of remaining

lease term, or 50 years

Land use rights and buildings outside Hong Kong in

the People’s Republic of China (“PRC”) over the period of the lease

Furniture, fixtures and fittings 3 to 20 years

Plant, machinery and equipment 2 to 10 years

Motor vehicles 3 to 10 years


63




(h) Other property, plant and equipment (Continued)

Where par ts of an item of proper ty, plant and equipment have different useful lives, the cost or valuation of

the item is allocated on a reasonable basis between the par ts and each par t is depreciated separately. Both the

useful life of an asset and its residual value, if any, are reviewed annually.

(i) Intangible assets (other than goodwill)

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure

on development activities is capitalised if the product or process is technically and commercially feasible and

the Group has sufficient resources and the intention to complete development.

Intangible assets represent product trademarks, patent rights for the manufacturing of healthcare products

and patent rights for software development acquired by the Group and are stated at cost less accumulated

amortisation and impairment losses (see note 1(k)). Amortisation is charged to profit or loss on a straight-line

basis over the estimated useful life of 10 to 20 years.

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic

benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(j) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group

determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time

in return for a payment or a series of payments. Such a determination is made based on an evaluation of the

substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the risks

and rewards of ownership are classified as being held under finance leases. Leases which do not transfer

substantially all the risks and rewards of ownership to the Group are classified as operating leases, with

the following exceptions:

– Proper ty held under operating leases that would otherwise meet the definition of an investment

proper ty is classified as an investment proper ty on a proper ty-by-proper ty basis and, if classified

as investment proper ty, is accounted for as if held under a finance lease (see note 1(g)); and

– Land held for own use under an operating lease, the fair value of which cannot be measured

separately from the fair value of a building situated thereon at the inception of the lease, is

accounted for as being held under a finance lease, unless the building is also clearly held under

an operating lease. For these purposes, the inception of the lease is the time that the lease was

first entered into by the Group, or taken over from the previous lessee.


64




(j) Leased assets (Continued)

(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases

are charged to profit or loss in equal instalments over the accounting periods covered by the lease

term, except where an alternative basis is more representative of the pattern of benefits to be derived

from the leased asset. Lease incentives received are recognised in profit or loss as an integral par t of the

aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting

period in which they are incurred.

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the

period of the lease term except where the proper ty is classified as an investment proper ty (see note

1(g)).

(k) Impairment of assets

(i) Impairment of investments in equity securities and other receivables

Investments in equity securities (other than investments in subsidiaries and associates: see note 1(k)(ii))

and other current and non-current receivables that are stated at cost or amortised cost or are classified

as available-for-sale securities are reviewed at each balance sheet date to determine whether there

is objective evidence of impairment. Objective evidence of impairment includes observable data that

comes to the attention of the Group about one or more of the following loss events:

– significant financial difficulty of the debtor ;

– a breach of contract, such as a default or delinquency in interest or principal payments;

– it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

– significant changes in the technological, market, economic or legal environment that have an

adverse effect on the debtor ; and

– a significant or prolonged decline in the fair value of an investment in an equity instrument

below its cost.


65




(k) Impairment of assets (Continued)

(i) Impairment of investments in equity securities and other receivables (Continued)

If any such evidence exists, any impairment loss is determined and recognised as follows:

– For unquoted equity securities carried at cost, the impairment loss is measured as the difference

between the carrying amount of the financial asset and the estimated future cash flows,

discounted at the current market rate of return for a similar financial asset where the effect of

discounting is material. Impairment losses for equity securities are not reversed.

– For trade and other current receivables and other financial assets carried at amortised cost,

the impairment loss is measured as the difference between the asset’s carrying amount and the

present value of estimated future cash flows, discounted at the financial asset’s original effective

interest rate (i.e. the effective interest rate computed at initial recognition of these assets),

where the effect of discounting is material. This assessment is made collectively where financial

assets carried at amortised cost share similar risk characteristics, such as similar past due status,

and have not been individually assessed as impaired. Future cash flows for financial assets which

are assessed for impairment collectively are based on historical loss experience for assets with

credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can

be linked objectively to an event occurring after the impairment loss was recognised, the

impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not

result in the asset’s carrying amount exceeding that which would have been determined had no

impairment loss been recognised in prior years.

– For available-for-sale securities, the cumulative loss that has been recognised directly in equity is

removed from equity and is recognised in profit or loss. The amount of the cumulative loss that

is recognised in profit or loss is the difference between the acquisition cost (net of any principal

repayment and amortisation) and current fair value, less any impairment loss on that asset

previously recognised in profit or loss.

Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are

not reversed through profit or loss. Any subsequent increase in the fair value of such assets is

recognised directly in equity.

Impairment losses are written off against the corresponding assets directly, except for impairment

losses recognised in respect of trade debtors and bills receivable included within trade and other

receivables, whose recovery is considered doubtful but not remote. In this case, the impairment

losses for doubtful debts are recorded using an allowance account. When the Group is satisfied

that recovery is remote, the amount considered irrecoverable is written off against trade debtors

and bills receivable directly and any amounts held in the allowance account relating to that debt

are reversed. Subsequent recoveries of amounts previously charged to the allowance account are

reversed against the allowance account. Other changes in the allowance account and subsequent

recoveries of amounts previously written off directly are recognised in profit or loss.


66





(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify

indications that the following assets may be impaired or, except in the case of goodwill, an impairment

loss previously recognised no longer exists or may have decreased:

– proper ty, plant and equipment (other than proper ties carried at revalued amounts);

– intangible assets;

– investments in subsidiaries and associates (except for those classified as held for sale (or included

in a disposal group that is classified as held for sale)); and

– goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill,

intangible assets that are not yet available for use and intangible assets that have indefinite useful lives,

the recoverable amount is estimated annually whether or not there is any indication of impairment.

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In

assessing value in use, the estimated future cash flows are discounted to their present value using

a pre-tax discount rate that reflects current market assessments of time value of money and the

risks specific to the asset. Where an asset does not generate cash inflows largely independent of

those from other assets, the recoverable amount is determined for the smallest group of assets

that generates cash inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or

the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses

recognised in respect of cash-generating units are allocated first to reduce the carrying amount

of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the

carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except

that the carrying value of an asset will not be reduced below its individual fair value less costs to

sell, or value in use, if determinable.


67





(ii) Impairment of other assets (continued)

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a

favourable change in the estimates used to determine the recoverable amount. An impairment

loss in respect of goodwill is not reversed.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been

determined had no impairment loss been recognised in prior years. Reversals of impairment

losses are credited to profit or loss in the year in which the reversals are recognised.

(l) Inventories

(i) Trading and manufacturing

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of

conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated

costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the

period in which the related revenue is recognised. The amount of any write-down of inventories to net

realisable value and all losses of inventories are recognised as an expense in the period the write-down

or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction

in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(ii) Property development

Proper ties held for sale are carried at the lower of cost and net realisable value. In the case of

proper ties developed by the Group, cost is determined by apportionment of the total development

costs for that development project, including borrowing costs capitalised (see note 1(w)), attributable

to the unsold proper ties. Net realisable value represents the estimated selling price less costs to be

incurred in selling the proper ty.

The cost of proper ties held for sale comprises all costs of purchase, costs of conversion and other costs

incurred in bringing the inventories to their present location and condition.


68




(m) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost

less allowance for impairment of doubtful debts (see note 1(k)), except where the receivables are interest-

free loans made to related par ties without any fixed repayment terms or the effect of discounting would be

immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

(n) Convertible notes

Conver tible notes that can be conver ted to equity share capital at the option of the holder, where the number

of shares that would be issued on conversion and the value of the consideration that would be received at that

time do not vary, are accounted for as compound financial instruments which contain both a liability component

and an equity component.

At initial recognition the liability component of the conver tible notes is measured as the present value of the

future interest and principal payments, discounted at the market rate of interest applicable at the time of initial

recognition to similar liabilities that do not have a conversion option. Any excess of proceeds over the amount

initially recognised as the liability component is recognised as the equity component. Transaction costs that

relate to the issue of a compound financial instrument are allocated to the liability and equity components in

proportion to the allocation of proceeds.

The liability component is subsequently carried at amortised cost. The interest expense recognised in profit

or loss on the liability component is calculated using the effective interest method. The equity component is

recognised in the other reserve until either the note is conver ted or redeemed.

If the note is conver ted, the other reserve, together with the carrying amount of the liability component at the

time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If

the note is redeemed, the other reserve is released directly to retained profits.

(o) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent

to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between

the amount initially recognised and redemption value being recognised in profit or loss over the period of the

borrowings, together with any interest and fees payable, using the effective interest method.

(p) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the

effect of discounting would be immaterial, in which case they are stated at cost.


69




(q) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial

institutions, and shor t-term, highly liquid investments that are readily conver tible into known amounts of

cash and which are subject to an insignificant risk of changes in value, having been within three months of

maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral par t of the Group’s

cash management are also included as a component of cash and cash equivalents for the purpose of the

consolidated cash flow statement.

(r) Employee benefits

(i) Short-term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans

and the cost of non-monetary benefits are accrued in the year in which the associated services are

rendered by employees. Where payment or settlement is deferred and the effect would be material,

these amounts are stated at their present values.

Contributions to the Mandatory Provident Funds as required under the Hong Kong Mandatory

Provident Fund Schemes Ordinance, are recognised as an expense in profit or loss as incurred.

The employees of the PRC subsidiaries par ticipate in defined contribution retirement plans managed

by the local government authority whereby the subsidiaries are required to contribute to the schemes

at fixed rates of the employees’ salary costs. In addition to the local government defined contribution

retirement plans, cer tain subsidiaries also par ticipate in supplementary defined contribution retirement

plans managed by independent insurance companies whereby the subsidiaries are required to make

contributions to the retirement plans at fixed rates of the employees’ salary costs. The subsidiaries have

no obligation for the payment of retirement and other post-retirement benefits of staff other than the

contributions described above.

(ii) Share based payments

The fair value of share options granted to employees is recognised as an employee cost with a

corresponding increase in a capital reserve within equity. The fair value is measured at grant date

using the binomial lattice model, taking into account the terms and conditions before becoming

unconditionally entitled to the options, the total estimated fair value of the options is spread over the

vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any

adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or

loss for the year of the review, unless the original employee expenses qualify for recognition as an asset,

with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an

expense is adjusted to reflect the actual number of options that vest (with a corresponding adjustment

to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate

to the market price of the Company’s shares. The equity amount is recognised in the capital reserve

until either the option is exercised (when it is transferred to the share premium account) or the option

expires (when it is released directly to retained profits).


70




(r) Employee benefits (Continued)

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to

terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed

formal plan which is without realistic possibility of withdrawal.

(s) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax

and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that

they relate to items recognised directly in equity, in which case they are recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being

the differences between the carrying amounts of assets and liabilities for financial repor ting purposes and their

tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apar t from cer tain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that

it is probable that future taxable profits will be available against which the asset can be utilised, are recognised.

Future taxable profits that may suppor t the recognition of deferred tax assets arising from deductible

temporary differences include those that will arise from the reversal of existing taxable temporary differences,

provided those differences relate to the same taxation authority and the same taxable entity, and are expected

to reverse either in the same period as the expected reversal of the deductible temporary difference or in

periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same

criteria are adopted when determining whether existing taxable temporary differences support the recognition

of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into

account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse

in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences

arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect

neither accounting nor taxable profit (provided they are not par t of a business combination), and temporary

differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the

Group controls the timing of the reversal and it is probable that the differences will not reverse in the

foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the

future.


71




(s) Income tax (Continued)

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement

of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the

balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent

that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be

utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will

be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each

other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets

against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current

tax assets against current tax liabilities and the following additional conditions are met:

– in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a

net basis, or to realise the asset and settle the liability simultaneously; or

– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same

taxation authority on either :

– the same taxable entity; or

– different taxable entities, which, in each future period in which significant amounts of deferred

tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax

assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(t) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncer tain timing or amount when the Group or the Company has

a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic

benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value

of money is material, provisions are stated at the present value of the expenditure expected to settle the

obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be

estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of

economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or

non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability

of outflow of economic benefits is remote.


72




(u) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if

applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue is recognised when goods are delivered at the customers’ premises which is taken to be

the point in time when the customer has accepted the goods and the related risks and rewards of

ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade

discounts.

(ii) Fee income

Fee income from value-added technical services is recognised when the services are rendered.

(iii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments

over the periods covered by the lease term, except where an alternative basis is more representative

of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted

are recognised in profit or loss as an integral par t of the aggregate net lease payments receivable.

Contingent rentals are recognised as income in the accounting period in which they are earned.

(iv) Dividends

– Dividend income from unlisted investments is recognised when the shareholder’s right to receive

payment is established.

– Dividend income from listed investments is recognised when the share price of the investment

goes ex-dividend.

(v) Interest income

Interest income is recognised as it accrues using the effective interest method.

(vi) Government subsidies

Government subsidies are recognised when there is reasonable assurance that they will be received and

that the Group will comply with the conditions attaching to them. Subsidies that compensate the Group

for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same

periods in which the expenses are incurred.


73




(v) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the

transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign

exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are

translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities

denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates

ruling at the dates the fair value was determined.

The results of foreign operations outside Hong Kong in the PRC are translated into Hong Kong dollars at

the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance

sheet items, including goodwill arising on consolidation of foreign operations acquired on or after 1 April

2005, are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The

resulting exchange differences are recognised directly in a separate component of equity. Goodwill arising on

consolidation of a foreign operation acquired before 1 April 2005 is translated at the foreign exchange rate

that applied at the date of acquisition of the foreign operation.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity

which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

(w) Borrowing costs

Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent

that they are capitalised as being directly attributable to the acquisition, construction or production of an asset

which necessarily takes a substantial period of time to get ready for its intended use or sale.

The capitalisation of borrowing costs as par t of the cost of a qualifying asset commences when expenditure

for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare

the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases

when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are

interrupted or complete.

(x) Related parties

For the purposes of these financial statements, a par ty is considered to be related to the Group if:

(i) the par ty has the ability, directly or indirectly through one or more intermediaries, to control the Group

or exercise significant influence over the Group in making financial and operating policy decisions, or has

joint control over the Group;


74




(x) Related parties (Continued)

(ii) the Group and the par ty are subject to common control;

(iii) the par ty is an associate of the Group;

(iv) the par ty is a member of key management personnel of the Group or the Group’s parent, or a close

family member of such an individual, or is an entity under the control, joint control or significant

influence of such individuals;

(v) the par ty is a close family member of a par ty referred to in (i) or is an entity under the control, joint

control or significant influence of such individuals; or

(vi) the par ty is a post-employment benefit plan which is for the benefit of employees of the Group or of

any entity that is a related par ty of the Group.

Close family members of an individual are those family members who may be expected to influence, or be

influenced by, that individual in their dealings with the entity.

(y) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services

(business segment), or in providing products or services within a par ticular economic environment (geographical

segment), which is subject to risks and rewards that are different from those of other segments.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as

well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may

include inventories, trade receivables and proper ty, plant and equipment. Segment revenue, expenses, assets and

liabilities are determined before intra-group balances and intra-group transactions are eliminated as par t of the

consolidation process, except to the extent that such intra-group balances and transactions are between group

entities within a single segment. Inter-segment pricing is based on similar terms as those available to other

external par ties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both

tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax

balances corporate and financing expenses.


75



2 CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued a number of new and revised HKFRSs and Interpretations that are first effective or available

for early adoption for the current accounting period of the Group and the Company.

There have been no significant changes to the accounting policies applied in these financial statements for the years

presented as a result of these developments. However, as a result of the adoption of HKFRS 7, Financial instruments:

Disclosures and the amendment to HKAS 1, Presentation of financial statements: Capital disclosures, there have been

some additional disclosures provided as follows:

As a result of the adoption of HKFRS 7, the financial statements include expanded disclosure about the significance of

the Group’s financial instruments and the nature and extent of risks arising from those instruments, compared with the

information previously required to be disclosed by HKAS 32, Financial instruments: Disclosure and presentation. These

disclosures are provided throughout these financial statements, in par ticular in note 35.

The amendment to HKAS 1 introduces additional disclosure requirements to provide information about the level

of capital and the Group’s and the Company’s objectives, policies and processes for managing capital. These new

disclosures are set out in note 32(b).

Both HKFRS 7 and the amendment to HKAS 1 do not have any material impact on the classification, recognition and

measurement of the amounts recognised in the financial instruments.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting

period (see note 42).


76



3 TURNOVER

The principal activity of the Company is investment holding. The principal activities of its subsidiaries are the

manufacturing, distribution and sale of healthcare products, electronic and electrical products, office equipment and

provision of related services, and media-related business. Fur ther details of the principal subsidiaries are set out in note

43 to the financial statements.

Turnover represents the invoiced value of goods sold and services provided to customers by the Group less returns,

discounts, business tax and value-added tax, and fee income from value-added technical services. The amount of each

significant category of revenue recognised in turnover during the year is as follows:

2008 2007

$’000 $’000

Manufacturing, distribution and sale of healthcare products 1,499,191 1,129,029

Manufacturing, distribution and sale of electronic and electrical products,

office equipment and provision of related services 1,480,737 1,240,606

Media-related business 8,123 5,906

2,988,051 2,375,541

4 OTHER REVENUE 2008 2007

$’000 $’000

Government subsidies (Note) 11,482 5,208

Interest income 5,818 8,873

Rental received from investment proper ties less outgoings 7,398 8,249

Dividend income from investments 650 380

Others 2,241 508

27,589 23,218

Note: These represent refunds of cer tain percentage of the Group’s value-added tax and business tax payments from local

municipal government in Shanghai.


77



5 OTHER NET INCOME 2008 2007

$’000 $’000

Gain/(loss) on disposal of fixed assets 2,592 (158)

Net exchange gain 126 1,031

Net gain on sale of marketing materials – 1,763

2,718 2,636

6 NON-OPERATING INCOME 2008 2007

$’000 $’000

Net realised/unrealised gain on trading securities 114,683 247,238

Provision for impairment loss on available-for-sale securities (52) –

Gain on disposal of interest in subsidiaries – 6,536

Loss on deemed disposal of interest in an associate (note 21(a)) (11,373) –

Excess of interest in net fair value of the acquiree’s identifiable assets and

liabilities over cost of business combination 1,915 3,084

Provision for impairment losses on other receivables (11,312) (27,899)

Reversal of impairment loss on proper ties 8,301 6,000

Others (3) 58

102,159 235,017


78



7 PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging/(crediting):

2008 2007

$’000 $’000

(a) Finance costs:

Interest on bank advances and other borrowings

repayable within five years 21,134 23,560

Interest on other loan 11,003 6,716

Other borrowing costs 2,325 2,040

Total borrowing costs 34,462 32,316

(b) Other items:

Cost of inventories 1,925,395 1,629,761

Staff costs (including retirement costs of $6,122,000 (2007: $5,482,000)

and equity settled share-based payment expenses of $27,984,000

(2007: $Nil)) 256,147 188,019

Amortisation of other intangible assets 2,155 1,970

Research and development costs 3,106 1,976

Provision for write-down in value of obsolete inventories made 26,968 6,867

Impairment losses for bad and doubtful debts 9,170 3,310

Depreciation 16,007 13,134

Dividend income from investments

– listed (619) (350)

– unlisted (31) (30)

Auditors’ remuneration

– audit services 3,220 2,770

– other services 550 500

Operating lease charges: minimum lease payments for land and buildings 83,977 40,599


79



8 INCOME TAX

(a) Income tax in the consolidated income statement represents:

2008 2007

$’000 $’000

Current tax

Provision for Hong Kong Profits Tax – –

Provision for income tax outside Hong Kong

in the PRC (“PRC enterprise income tax”) 85,426 68,059

85,426 68,059

Deferred tax

Origination and reversal of temporary differences (note 34(a)) (8,995) (2,716)

Effect of change in tax rate on deferred tax balances 4,390 –

80,821 65,343

No provision for Hong Kong Profits Tax has been made as the Hong Kong companies of the Group sustained

losses for taxation purposes during the year. PRC enterprise income tax is calculated at the applicable rates on

the estimated taxable income earned by the companies in the PRC.

On 16 March 2007, the Tenth National People’s Congress approved the PRC Corporate Income Tax Law (the

“New CIT Tax Law”), which is effective from 1 January 2008. Under the New CIT Tax Law, corporate income

tax rate for domestic companies and foreign-invested enterprises will decrease from 33% to 25% since 1

January 2008. In this connection, the deferred tax balances of those subsidiaries in the PRC which were subject

to standard enterprise income tax rate of 33% were increased by $4,390,000 as at 31 March 2008. In addition,

for those enterprises benefiting from lower preferential tax rates, such preferential rates will be gradually

phased out by increasing them over the next five years.


80



8 INCOME TAX (Continued)

(a) Income tax in the consolidated income statement represents: (Continued)

Reconciliation between tax expense and accounting profit at applicable tax rates:

2008 2007

$’000 $’000

Profit before taxation 143,615 298,582

Notional tax on profit before taxation, calculated

at the rates applicable to profits in the tax

jurisdictions concerned 40,371 86,423

Tax effect of non-deductible expenses 37,764 29,260

Tax effect of non-taxable revenue (20,397) (61,851)

Tax effect of unused tax losses not recognised 18,693 11,511

Effect of change in tax rate on deferred tax balances 4,390 –

Actual tax expense 80,821 65,343

(b) Current taxation in the balance sheets represents:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Provision for Hong Kong

Profits Tax

– Provisional Profits Tax paid – – – –

Provision for PRC enterprise

income tax 143,180 98,210 – –

143,180 98,210 – –


81



9 DIRECTORS’ REMUNERATION

Directors’ remuneration, excluding emoluments waived, disclosed pursuant to section 161 of the Hong Kong

Companies Ordinance is as follows:

Salaries Retirement Share-based

Directors’ and other scheme payments 2008

fees emoluments contributions Sub-total (Note) Total

$’000 $’000 $’000 $’000 $’000 $’000

Executive directors

Duan Yongji – 1,929 – 1,929 3,393 5,322

Shi Yuzhu – 480 – 480 1,131 1,611

Shen Guojun – 873 – 873 905 1,778

Zhang Disheng – 1,121 26 1,147 1,358 2,505

Chen Xiaotao – – – – 905 905

Liu Wei – 1,345 7 1,352 679 2,031

Non-executive director

Cheng Fumin – 123 – 123 214 337


Ng Ming Wah, Charles 280 – – 280 427 707

Andrew Y Yan 280 – – 280 427 707

Liu Ji 250 – – 250 427 677

Liu Jipeng 250 – – 250 427 677

1,060 5,871 33 6,964 10,293 17,257


82



9 DIRECTORS’ REMUNERATION (Continued)

Salaries Retirement

Directors’ and other scheme Share-based 2007

fees emoluments contributions Sub-total payments Total

$’000 $’000 $’000 $’000 $’000 $’000

Executive directors

Duan Yongji – 4,148 – 4,148 – 4,148

Shi Yuzhu – 1,740 – 1,740 – 1,740

Shen Guojun – 1,020 – 1,020 – 1,020

Zhang Disheng – 1,655 20 1,675 – 1,675

Chen Xiaotao – 400 – 400 – 400

Liu Wei – 1,778 – 1,778 – 1,778


Ng Ming Wah, Charles 271 – – 271 – 271

Andrew Y Yan 269 – – 269 – 269

Liu Ji 239 – – 239 – 239

Liu Jipeng 234 – – 234 – 234

1,013 10,741 20 11,774 – 11,774

During the year ended 31 March 2008, two directors agreed to waive par t of their emoluments totalling $11,477,000

(2007: $11,720,000) to which they are entitled under the service contracts entered into with the Company.

Note: These represent the estimated value of share options granted to the directors under the Company’s share option scheme.

The value of these share options is measured according to the Group’s accounting policies for share-based payment

transactions as set out in note 1(r)(ii) and, in accordance with that policy, includes adjustments to reserve amounts accrued in

previous years where grants of equity instruments are forfeited prior to vesting.

The details of these benefits in kind, including the principal terms and number of options granted, are disclosed under the

paragraph “Share option scheme” in the directors’ repor t and note 31.


83



10 INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five individuals with the highest emoluments comprise five (2007: four) directors whose emoluments are disclosed

in note 9 and nil (2007: one) employee. Details of the emoluments in respect of these employees are as follows:

2008 2007

$’000 $’000

Salary, housing and other emoluments – 899

Discretionary bonuses – 540

Share-based payments – –

Retirement scheme contributions – 20

– 1,459

The emoluments of the above employees are within the following bands:

2008 2007

Number of Number of

employees employees

$0 – $1,000,000 – –

$1,000,001 – $1,500,000 – 1

11 PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated profit for the year attributable to equity shareholders of the Company includes a profit of

$35,888,000 (2007: loss of $26,945,000) which has been dealt with in the financial statements of the Company.

12 DIVIDENDS 2008 2007

$’000 $’000

Final dividend proposed after the balance sheet date of $Nil

(2007: 1.3 cents) per share – 23,192

The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet

date.


84



13 EARNINGS PER SHARE

(a) Basic earnings per share

The calculation of basic earnings per share is based on the profit for the year attributable to equity shareholders

of the Company of $16,503,000 (2007: $134,333,000) and the weighted average number of ordinary shares of

approximately 1,802,662,000 shares (2007: 1,558,705,000 shares) in issue during the year, calculated as follows:

Weighted average number of ordinary shares

2008 2007

$’000 $’000

Issued ordinary shares at 1 April 2007/2006 1,559,930 1,508,914

Effect of conversion of conver tible notes 211,728 53,583

Effect of exercise of share options 31,186 –

Effect of repurchase of own shares (182) (3,792)

Weighted average number of ordinary shares at 31 March 1,802,662 1,558,705

(b) Diluted earnings per share

The calculation of diluted earnings per share is based on the profit for the year attributable to the equity

shareholders of the Company of $16,503,000 (2007: $156,495,000) and the weighted average number of

ordinary shares of approximately 1,889,663,000 shares (2007: 2,472,228,000 shares) calculated as follows:

(i) Profit attributable to equity shareholders of the Company (diluted)

2008 2007

$’000 $’000

Profit attributable to equity shareholders 16,503 134,333

Effect of effective interest on liability component

of conver tible notes – 22,162

Profit attributable to equity shareholders (diluted) 16,503 156,495


85



13 EARNINGS PER SHARE (Continued)

(b) Diluted earnings per share (continued)

(ii) Weighted average number of ordinary shares (diluted)

2008 2007

Number Number

of shares of shares

’000 ’000

Weighted average number of ordinary shares at 31 March 1,802,662 1,558,705

Effect of conversion of conver tible notes 56,296 913,523

Effect of exercise of share options 30,705 –

Weighted average number of ordinary shares

(diluted) at 31 March 1,889,663 2,472,228

14 RETIREMENT SCHEMES

Pursuant to the requirements of the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) and related

guidelines, the Group’s and employees’ contributions to the MPF Scheme are based on 5% of the relevant income

of the relevant staff. The Group’s contributions payable to the MPF Scheme are charged to the income statement.

Retirement costs for the MPF Scheme for the year were $201,000 (2007: $178,000).

The employees of the subsidiaries in the PRC are members of the Central Pension Scheme operated by the

Government of the PRC. The subsidiaries are required to contribute a cer tain percentage of the employee’s payroll

to the Central Pension Scheme to fund the benefits. The obligation for the Group with respect to the Central Pension

Scheme is the required contributions under the Central Pension Scheme.

Other than the above, cer tain subsidiaries also par ticipate in supplementary defined contribution retirement plans

managed by independent insurance companies whereby the subsidiaries are required to make contributions to the

retirement plans at fixed rates of the employees’ salary costs.

Retirement costs for the Central Pension Scheme and supplementary retirement plans for the year were $5,921,000

(2007: $5,304,000).


86



15 SEGMENT REPORTING

Segment information is presented in respect of the Group’s business and geographical segments. Business segment

information is chosen as the primary reporting format because this is more relevant to the Group’s internal financing

reporting.

Business segments

The Group comprises the following main business segments:

Healthcare : The manufacture, distribution and sale of healthcare products.

Electronics : The manufacture, distribution and sale of electronic and electrical products, office

equipment and provision of related services.

Media-related business : The provision of ancillary services for the development of the cable television

and other media-related business.

Healthcare Electronics Media-related business Unallocated Consolidated

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Revenue from external customers 1,499,191 1,129,029 1,480,737 1,240,606 8,123 5,906 – – 2,988,051 2,375,541

Other revenue from external customers 13,595 5,208 100 340 – 123 13,894 17,547 27,589 23,218

Total 1,512,786 1,134,237 1,480,837 1,240,946 8,123 6,029 13,894 17,547 3,015,640 2,398,759

Segment result 143,550 117,728 (19,624) 12,617 2,596 (3,975) (50,370) (24,770) 76,152 101,600

Valuation gains on investment proper ties 14,462 6,744

Non-operating income 102,159 235,017

Finance costs (34,462) (32,316)

Share of profits less losses of associates – – 7,166 1,465 (21,847) (13,926) (15) (2) (14,696) (12,463)

Income tax (80,821) (65,343)

Profit for the year 62,794 233,239


87



15 SEGMENT REPORTING (Continued)

Business segments (continued)

Healthcare Electronics Media-related business Unallocated Consolidated

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Depreciation and amortisation

for the year 5,518 4,240 8,578 7,070 1,954 1,726 2,112 2,068 18,162 15,104

Reversal of impairment loss – – – – – – 8,301 6,000 8,301 6,000

Significant non-cash expenses

(other than depreciation and

amortisation) 23,928 10,648 22,662 27,428 – – 28,844 – 75,434 38,076

Segment assets 2,183,288 1,829,745 741,712 631,352 740,391 687,088 306,137 390,559 3,971,528 3,538,744

Interest in associates – – 48,036 34,762 433,006 347,977 104,117 5,403 585,159 388,142

Total assets 4,556,687 3,926,886

Segment liabilities 394,562 193,924 252,215 179,111 318,636 120,204 426,570 591,897 1,391,983 1,085,136

Capital expenditure incurred

during the year 7,616 7,545 8,781 10,127 8,636 841 315 149 25,348 18,662

Geographical segments

No analysis of the Group’s turnover and results by geographical segment has been presented as almost all the Group’s

operating activities are carried out in the PRC and less than 10 per cent of the Group’s turnover and results were

derived from activities conducted outside the PRC.


88



16 INVESTMENT PROPERTIES Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Valuation:

At 1 April 2007/2006 96,295 88,274 4,500 3,900

Exchange adjustments 5,058 2,596 – –

Disposal during the year (3,474) – – –

Surplus on revaluation 14,462 6,744 670 600

Transfer to fixed assets (note 17(a)) – (1,319) – –

At 31 March 112,341 96,295 5,170 4,500

(a) The analysis of valuation of investment properties is as follows:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Held in Hong Kong under long-term leases 2,900 2,000 – –

Held outside Hong Kong in the PRC under

medium-term leases 109,441 94,295 5,170 4,500

112,341 96,295 5,170 4,500

(b) The investment proper ties held in Hong Kong and outside Hong Kong in the PRC were revalued at 31 March

2008 on an open market value basis calculated by reference to net rental income allowing for reversionary

income potential. The valuations were carried out by an independent firm of surveyors, RHL Appraisal Limited,

who have among their staff Fellows of the Hong Kong Institute of Surveyors, with recent experience in the

location and category of proper ty being valued.

(c) The gross carrying amounts of investment proper ties of the Group held for use in operating leases were

$112,341,000 (2007: $96,295,000).

The Group leases out investment proper ties under operating leases. The leases typically run for an initial

period of 6 months to 2 years, with an option to renew the lease after that date at which time all terms are

renegotiated. None of the leases includes contingent rentals.


89



16 INVESTMENT PROPERTIES (Continued)

(d) The Group’s total future minimum lease payments under non-cancellable operating leases are receivable as

follows:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Within 1 year 3,613 4,280 490 290

After 1 year but within 5 years 481 868 365 17

4,094 5,148 855 307

17 PROPERTY, PLANT AND EQUIPMENT

(a) Group

Land and Furniture, Plant,

Property buildings fixtures machinery

under held for and and Motor

development own use fittings equipment vehicles Total

$’000 $’000 $’000 $’000 $’000 $’000

Cost or valuation:

At 1 April 2007 17,407 135,662 12,884 37,614 38,408 241,975

Additions for the year 8,255 58 3,795 6,777 6,463 25,348

Disposals – (6,365) (35) (10,376) (4,593) (21,369)

Exchange adjustments 1,630 5,425 528 3,298 3,286 14,167

At 31 March 2008 27,292 134,780 17,172 37,313 43,564 260,121

Representing:

Cost 27,292 134,087 17,172 37,313 43,564 259,428

Valuation in 1992 – 693 – – – 693

27,292 134,780 17,172 37,313 43,564 260,121


90



17 PROPERTY, PLANT AND EQUIPMENT (Continued)

(a) Group (continued)

Land and Furniture, Plant,

Property buildings fixtures machinery

under held for and and Motor

development own use fittings equipment vehicles Total

$’000 $’000 $’000 $’000 $’000 $’000

Accumulated amortisation

and depreciation:

At 1 April 2007 – 45,583 5,707 22,277 25,739 99,306

Charge for the year – 3,230 1,844 5,514 5,419 16,007

Written back on disposals – (956) (31) (10,371) (4,418) (15,776)

Reversal of impairment

loss (Note) – (8,301) – – – (8,301)

Exchange adjustments – 2,497 288 1,898 2,101 6,784

At 31 March 2008 – 42,053 7,808 19,318 28,841 98,020

Net book value:

At 31 March 2008 27,292 92,727 9,364 17,995 14,723 162,101


91





Land and Furniture, Plant, Property buildings fixtures machinery under held for and and Motor development own use fittings equipment vehicles Total $’000 $’000 $’000 $’000 $’000 $’000

Cost or valuation:

At 1 April 2006 – 126,345 12,419 32,840 36,351 207,955Transfer from investment proper ties (note 16) – 1,319 – – – 1,319Additions for the year 17,407 5,566 1,062 7,592 3,976 35,603Reductions through disposal of subsidiaries – – (813) (3,284) (2,646) (6,743)Other disposals – – (43) (1,063) (925) (2,031)Exchange adjustments – 2,432 259 1,529 1,652 5,872

At 31 March 2007 17,407 135,662 12,884 37,614 38,408 241,975

Representing:

Cost 17,407 134,969 12,884 37,614 38,408 241,282Valuation in 1992 – 693 – – – 693

17,407 135,662 12,884 37,614 38,408 241,975

Accumulated amortisation and depreciation:

At 1 April 2006 – 47,559 4,657 19,291 22,447 93,954Charge for the year – 2,827 1,393 4,560 4,354 13,134Reductions through disposal of subsidiaries – – (444) (1,603) (1,095) (3,142)Written back on disposals – – (20) (854) (925) (1,799)Reversal of impairment loss (Note) – (6,000) – – – (6,000)Exchange adjustments – 1,197 121 883 958 3,159

At 31 March 2007 – 45,583 5,707 22,277 25,739 99,306

Net book value:

At 31 March 2007 17,407 90,079 7,177 15,337 12,669 142,669


92





Note: Due to the continual growth of the Hong Kong proper ty market, the Group reassessed the recoverable amount

of the land and buildings held for own use at the balance sheet date and $8,301,000 (2007: $6,000,000) of the

recognised impairment loss was reversed during the year (included in “Non-operating income”). The estimates of

recoverable amount were determined on an open market value basis by an independent firm of surveyors, RHL

Appraisal Limited who have among their staff Fellows of the Hong Kong Institute of Surveyors.

(b) Company

Furniture,

fixtures Motor

and fittings vehicles Total

$’000 $’000 $’000

Cost or valuation:

At 1 April 2007 3,455 3,321 6,776

Additions 79 – 79

At 31 March 2008 3,534 3,321 6,855


At 1 April 2007 2,729 3,303 6,032

Charge for the year 274 18 292

At 31 March 2008 3,003 3,321 6,324

Net book value:

At 31 March 2008 531 – 531


93




(b) Company (continued)

Furniture,

fixtures Motor

and fittings vehicles Total

$’000 $’000 $’000

Cost or valuation:

At 1 April 2006 3,317 3,321 6,638

Additions 149 – 149

Disposals (11) – (11)

At 31 March 2007 3,455 3,321 6,776


At 1 April 2006 2,342 3,275 5,617

Charge for the year 398 28 426

Written back on disposals (11) – (11)

At 31 March 2007 2,729 3,303 6,032

Net book value:

At 31 March 2007 726 18 744

(c) The analysis of cost or valuation of land and buildings is as follows:

Group

2008 2007

$’000 $’000

Held in Hong Kong under long-term leases 47,084 47,084

Held outside Hong Kong in the PRC under medium-term leases 82,769 84,125

Held outside Hong Kong in the PRC under shor t-term leases 4,927 4,453

134,780 135,662


94




(d) Land and buildings held by a subsidiary with carrying value of $36,913,000 (2007: $29,400,000) was pledged as

security for banking facilities amounting to $38,000,000 (2007: $35,000,000), which were utilised to the extent

of $22,686,000 at 31 March 2008 (2007: $15,781,000) (note 27).

18 GOODWILL Group

$’000

Cost:

At 1 April 2006/2007 and 31 March 2007/2008 1,140,132

Accumulated impairment losses:

At 1 April 2006/2007 and 31 March 2007/2008 (Note) 3,518

Carrying amount:

At 31 March 2007 and 2008 1,136,614


95



18 GOODWILL (Continued)

Note:

Impairment test for cash-generating unit containing goodwill

Goodwill at the balance sheet date primarily related to the distribution network of “Naobaijin” and “GoldPar tner” operated by the

subsidiaries of Central New International Limited (“Central New”).

The healthcare manufacturing and distribution unit contains the whole of the goodwill arising from the acquisition of Central New.

The impairment test of this unit is based on value in use calculations. Those calculations use cash flow projections based on actual

operating results for the year ended 31 March 2008 and approved budget for the year ending 31 March 2009. In view of the

introduction of new products in the coming years, turnover for the years ending 31 March 2010 and 2011 are extrapolated using 25

per cent and 40 per cent growth rate respectively and remain constant thereafter in future years. The growth rate is consistent with

the growth rate for the industry. Pre-tax discount rate of 12.57 per cent had been used in discounting the projected cash flows.

The key assumption is the annual growth of the turnover of the healthcare products and it is determined based on the statistical

analysis of the annual consumption of healthcare products in the PRC adjusted for actual experience. The turnover growth of the

healthcare products is considered to be in line with the cash flow projections.

The carrying amount of the unit exceeds its recoverable amount. Any adverse change in the key assumption could reduce the

recoverable amount below carrying amount.


96



19 OTHER INTANGIBLE ASSETS

Trademark and patent rights

Group

2008 2007

$’000 $’000

Cost:

At 1 April 2007/2006 39,401 37,525

Exchange adjustments 3,690 1,876

At 31 March 43,091 39,401

Accumulated amortisation and impairment losses:

At 1 April 2007/2006 6,073 3,908

Amortisation for the year 2,155 1,970

Exchange adjustments 569 195

At 31 March 8,797 6,073

Carrying amount:

At 31 March 34,294 33,328

The amortisation charge for the year is included in “Other operating expenses” in the consolidated income statement.


97



20 INTEREST IN SUBSIDIARIES Company

2008 2007

$’000 $’000

Unlisted investments, at cost 287,137 288,424

Amounts due from subsidiaries (Note) 2,207,304 2,109,287

Amounts due to subsidiaries (Note) (70,304) (1,948)

2,424,137 2,395,763

Less: Impairment loss (203,498) (203,498)

2,220,639 2,192,265

Note: Except for an amount of $2,043,000 (2007: $1,945,000) due to a subsidiary which is interest-bearing at London Interbank

Offered Rate (“LIBOR”) plus 1% (2007: LIBOR plus 1%) per annum, all the amounts due from/to subsidiaries are unsecured,

interest-free and have no fixed terms of repayments.

Details of the principal subsidiaries are set out in note 43 to the financial statements.

21 INTEREST IN ASSOCIATES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Unlisted investments, at cost – – 102,227 433

Share of net assets 527,444 317,905 – –

Goodwill (Note (b)) 63,132 75,654 – –

590,576 393,559 102,227 433

Less: Impairment loss (5,417) (5,417) – –

585,159 388,142 102,227 433


98



21 INTEREST IN ASSOCIATES (Continued)

(a) On 17 April 2007, the Group served a conversion notice to China Cable Media Group Limited (“CCMG”) to

exercise the right to conver t the bridge loans owed to the Group by CCMG and China Cable Network Co.,

Ltd. and the unpaid interest totalling US$6,899,441 (equivalent to approximately $53,800,000) into 3,104,749

preference shares of CCMG at the conversion price of approximately US$2.22 per share.

On 18 April 2007, the Group entered into a share purchase agreement with CCMG pursuant to which the

Group conditionally agreed to subscribe for and CCMG conditionally agreed to allot and issue 3,150,000

preference shares at a consideration of US$7.0 million (equivalent to approximately $54,600,000), representing

a subscription price of approximately US$2.22 per share. On the same date, CCMG also entered into

subscription agreements pursuant to which the existing financial investor and two new investors conditionally

agreed to subscribe for 5,400,001, 4,050,000 and 450,000 new preference shares of CCMG respectively at the

subscription price of approximately US$2.22 per share.

After all the conversions and subscriptions, the Group’s interest in CCMG decreased slightly from 36.9% to

36.12% as at 31 March 2008 and a loss on deemed disposal of $11,373,000 was recognised in the current year

accordingly (note 6).

(b) In April 2005, the Group acquired a 40% interest in Me To You Holdings Limited (“Cayman MTY”) at a

consideration of US$19.2 million (equivalent to approximately $149,760,000) by cash. This acquisition has given

rise to goodwill of approximately $76 million.

Pursuant to the sale and purchase agreement, Yearbase International Limited (“the Vendor”) and Mr Chen

Zhi Feng, guarantor of the Ventor provide a guarantee to the Group on, among other things, the consolidated

net profit after taxation of Cayman MTY and its subsidiaries (“MTY Group”) for each of the years ended 31

December 2005 and 31 December 2006. In the event that the audited consolidated net profit after taxation

of MTY Group is less than the guaranteed profit (as predetermined), the interest of the Group in MTY Group

should be adjusted by way of issue of new shares. As the audited consolidated net profit after taxation of MTY

Group for the year ended 31 December 2006 was less than the guaranteed amount of US$8.1 million, the

Group was compensated by 4,500 ordinary shares of Cayman MTY currently held by the Vendor and granted

an option to acquire additional 1,900 ordinary shares of Cayman MTY (“Option Shares”) from the Vendor

at US$1 for a period of 5 years (the “Option Period”, i.e. 2 August 2007 to 1 August 2012). The Vendor also

irrevocably and unconditionally assigned all the dividends derived from the Option Shares and the right to

receive the dividends during the Option Period to the Group for a consideration of US$1.

After receiving the compensation from the Vendor, the Group’s interest in MTY Group increased from

40% as at 31 March 2007 to 49% as at 31 March 2008 and MTY Group still remained as an associate of

the Group. Accordingly, the fair value of the acquired share of net assets in Cayman MTY was increased by

$12,522,000 and the goodwill on acquisition of Cayman MTY was reduced from approximately $75,654,000 to

approximately $63,132,000 as at 31 March 2008.


99



21 INTEREST IN ASSOCIATES (Continued)

(c) Details of the principal associates are set out in note 44 to the financial statements.

(d) Summary financial information on associates

Assets Liabilities Equity Revenue Loss

$’000 $’000 $’000 $’000 $’000

2008

100 percent 1,369,013 (247,492) 1,121,521 191,141 (25,742)

Group’s effective interest 644,650 (117,206) 527,444 78,744 (14,696)

2007

100 percent 1,039,316 (228,608) 810,708 195,229 (35,030)

Group’s effective interest 405,140 (87,235) 317,905 77,931 (12,463)

22 OTHER FINANCIAL ASSETS

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Available-for-sale equity securities

Listed in Hong Kong 1,635 1,755 1,635 1,755

Unlisted 53,955 42,539 50,134 39,070

55,590 44,294 51,769 40,825

Market value of listed securities 1,635 1,755 1,635 1,755

Fair value of individually impaired

available-for-sale securities 1,635 1,755 1,635 1,755


100



22 OTHER FINANCIAL ASSETS (Continued)

As at 31 March 2008, the Group’s and the Company’s listed available-for-sale equity securities were individually

determined to be impaired on the basis of a material decline in their fair value below cost and adverse changes in the

market in which these investees operated which indicated that the cost of the Group’s investment in them may not be

recovered. Impairment losses on these investments were recognised in profit or loss in accordance with the policy set

out in note 1(k)(i) (see note 6).

23 TRADING SECURITIES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Equity securities, at market value

Listed in Hong Kong 14,736 19,864 14,181 18,708

Listed outside Hong Kong 943,712 874,732 – –

958,448 894,596 14,181 18,708

24 INVENTORIES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Trading and manufacturing

Raw materials 14,141 11,849 – –

Work in progress 1,861 2,534 – –

Finished goods 159,433 163,367 – –

175,435 177,750 – –

Property development

Proper ties held for sale 15,470 15,470 15,470 15,470

190,905 193,220 15,470 15,470


101



24 INVENTORIES (Continued)

The amount of trading and manufacturing inventories carried at net realisable value is $23,909,000 (2007: $26,726,000).

Proper ties held for sale at 31 March 2008 were carried at net realisable value based on management estimates by

reference to prevailing market conditions.

25 TRADE AND OTHER RECEIVABLES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Debtors, prepayments and other receivables 685,384 423,955 6,440 4,284

Gross amount due from customers

for contract work – 1,271 – –

Amounts due from associates 58,874 71,727 – –

Amounts due from related companies 9,308 16,332 12,273 4,040

753,566 513,285 18,713 8,324

All of the trade and other receivables are expected to be recovered within one year.

The Group’s credit policy is set out in note 35(a).

(a) Included in debtors, prepayments and other receivables are trade debtors (net of allowance for impairment of

doubtful debts) with the following ageing analysis as of the balance sheet date:

Group

2008 2007

$’000 $’000

Current 443,215 263,129

Due within 6 months 39,967 41,029

Due over 6 months but within 12 months 15,634 4,795

Due over 12 months but within 24 months 22,411 –

521,227 308,953


102



25 TRADE AND OTHER RECEIVABLES (Continued)(b) Impairment of trade debtors and bills receivable

Impairment losses in respect of trade debtors and bills receivable are recorded using an allowance account

unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is

written off against trade debtors and bills receivable directly (see note 1k(i)).

The movement in the allowance for doubtful debts during the year, including both specific and collective loss

components, is as follows:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

At 1 April 2007/2006 107,370 104,745 – –

Impairment loss recognised 3,612 2,625 – –

At 31 March 110,982 107,370 – –

At 31 March 2008, the Group’s and the Company’s trade debtors and bills receivable of $124,028,000 (2007:

$133,637,000) and $Nil (2007: $Nil) respectively were individually determined to be impaired. The individually

impaired receivables related to customers that were in financial difficulties and management assessed that only

a por tion of the receivables is expected to be recovered. Consequently, specific allowances for doubtful debts

of $110,982,000 (2007: $107,370,000) and $Nil (2007: $Nil) respectively were recognised. The Group does not

hold any collateral over these balances.


103



25 TRADE AND OTHER RECEIVABLES (Continued)

(c) Trade debtors and bills receivable that are not impaired

The ageing analysis of trade debtors and bills receivable that are neither individually nor collectively considered

to be impaired are as follows:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Neither past due nor impaired 434,046 241,635 – –

Due within 6 months 39,431 37,254 – –

Due over 6 months

but within 12 months 12,293 3,797 – –

Due over 12 months

but within 24 months 22,411 – – –

74,135 41,051 – –

508,181 282,686 – –

Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was

no recent history of default.

Receivables that were past due but not impaired relate to independent customers that have a good track

record with the Group. Based on past experience, management believes that no impairment allowance is

necessary in respect of these balances as there has not been a significant change in credit quality and the

balances are still considered fully recoverable. The Group does not hold any collateral over these balances.


104



26 CASH AND CASH EQUIVALENTS

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Deposits with banks and other financial

institutions 85,177 57,370 17,497 22,007

Cash at bank and in hand 467,845 419,832 38,719 96,639

Cash and cash equivalents in the

balance sheets and consolidated

cash flow statement 553,022 477,202 56,216 118,646

27 BANK LOANS

At 31 March 2007 and 2008, the bank loans were repayable as follows:

Group

2008 2007

$’000 $’000

Within 1 year 151,238 17,231

After 1 year but within 2 years 1,875 2,500

After 2 years but within 5 years – 1,875

1,875 4,375

153,113 21,606

At 31 March 2008, the banking facilities of cer tain subsidiaries of the Group are secured by mortgages over land and

buildings with an aggregate carrying value of $36,913,000 (2007: $29,400,000) (note 17(d)). At 31 March 2008, such

banking facilities amounting to $38,000,000 (2007: $35,000,000), were utilised to the extent of $22,686,000 (2007:

$15,781,000).


105



28 OTHER LOAN Group

2008 2007

$’000 $’000

Secured and repayable on demand 311,240 117,210

The other loan is secured by 2,500,000 ordinary shares of SINA Corporation held by the Group with carrying value

of US$88.2 million (equivalent to approximately $686 million as at 31 March 2008 (2007: US$84.1 million (equivalent

to approximately $657 million). This loan bears interest at a rate of LIBOR plus 0.5% per annum and is repayable on

demand.

29 TRADE AND OTHER PAYABLES Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Creditors, accruals and other payables 372,292 277,649 12,973 20,039

Amounts due to related companies 4,059 9,011 99 99

376,351 286,660 13,072 20,138

All of the trade and other payables are expected to be settled within one year.

Included in creditors, accruals and other payables are trade creditors with the following ageing analysis:

Group

2008 2007

$’000 $’000

Due within 6 months or on demand 88,028 57,445

Due after 6 months but within 12 months 244 483



88,912 58,281


106



30 CONVERTIBLE NOTES Group and Company

2008 2007

$’000 $’000

Balance at 1 April 2007/2006 560,431 574,001

Conversion during the year (168,464) (29,155)

Effective interest for the year 12,312 15,585

Balance at 31 March 404,279 560,431

At 31 March 2007 and 2008, conver tible notes were repayable as follows:

Group and Company

2008 2007

$’000 $’000

Within 1 year 318,184 –

After 1 year but within 2 years 86,095 426,142

After 2 years but within 5 years – 134,289

86,095 560,431

404,279 560,431

(a) On 6 June 2003, the Company and a placing agent entered into an agreement whereby (i) the placing agent

agreed to procure subscribers to subscribe as principals for the conver tible notes (the “Original Notes”) of

a principal amount of at least $50 million, and (ii) the Company granted to the placing agent the option (the

“Option”) to require the Company to issue additional conver tible notes up to an additional principal amount of

$350 million for subscription by the subscribers upon the terms and conditions of the placing agreement. The

Option was exercisable by the placing agent on or before 13 January 2005. In 2003, Original Notes of $220

million were issued. During the period ended 31 March 2005, the remaining Original Notes of $180 million

were issued pursuant to the placing agreement.

The Original Notes bear interest at a rate of 3% per annum, payable annually in arrears with the first interest

payment to be made on the date falling twelve months from the date of issue of such conver tible notes.


107



30 CONVERTIBLE NOTES (Continued)

(a) The Original Notes will be redeemed at 100% of the principal amount plus any accrued and unpaid interest

on the maturity date. The Company can redeem in whole or in par t the issued Original Notes prior to their

maturity dates by serving at least seven calendar days written notice and payment of 100% of the principal

amount plus an early redemption fee of 7% on the redeemed amount and any accrued and unpaid interest.

The Original Notes holders can, by written notice to the Company, within four teen days immediately after the

expiry of a six-month period following the date of issue of the respective Original Notes, require the Company

to redeem the Original Notes at an amount equivalent to 100% of the principal amount of the Original Notes

plus a 1.7% premium.

The Original Notes are conver tible at any time on the day following 90 calendar days after the date of issue of

the Original Notes up to the four teenth day prior to and exclusive of the maturity date at a conversion price

of $0.52 per share (subject to adjustments). The maturity date of each Original Note is the date falling sixty

months from (and inclusive of) the date of issue of such conver tible notes.

(b) On 4 March 2004, conver tible notes of approximately $572 million (the “Notes”) were issued as par t of the

consideration for the acquisition of a subsidiary. The Notes are non-interest bearing and will mature in 5 years

after the issue date.

The Company has the right to redeem the Notes at 100% of the principal amount in amounts of $500,000 or

integral multiples thereof prior to the maturity date by giving not less than seven business days written notice.

The Notes comprise Series A, Series B and Series C Notes in the principal amounts of $190 million, $190

million and $192 million respectively, and are conver tible by the holder at any time after 12 months, 15 months

and 27 months respectively from the date of issue of the Notes at a conversion price of $0.76 per share,

subject to adjustments.

(c) On 20 December 2005, the Company entered into a Repurchase Agreement with Ready Finance Limited,

pursuant to which the Company has conditionally agreed to repurchase $191,955,403 nominal value of the

Company’s approximately $566 million outstanding Notes (the “Repurchase”) held by Ready Finance Limited

for a cash consideration of $145,406,003. Upon completion, the said repurchased Notes were cancelled, and

approximately $374 million of the remaining outstanding Notes maturing 3 March 2009 continue to be held

by Ready Finance Limited. The gain of $24,930,000 arising from the Repurchase has been included in “Non-

operating income” in the consolidated income statement for the year ended 31 March 2006.

(d) During the year ended 31 March 2007, $30 million of the Original Notes were conver ted into 57,692,307

ordinary shares of the Company (note 32).


108



30 CONVERTIBLE NOTES (Continued)

(e) During the year, $55 million of the Original Notes and $122 million of the Notes were conver ted into

105,769,229 and 160,526,313 ordinary shares of the Company respectively (note 32).

(f) The effective interest rate of the Original Notes and the Notes for the year ended 31 March 2008 is 4% (2007:

4%).

31 EQUITY SETTLED SHARE-BASED TRANSACTIONS

The Group adopted a share option scheme (the “Scheme”) pursuant to the shareholders’ resolution in a general

meeting on 12 April 2002, following the amendments on the Listing Rules which came into effect from September

2001.

Under the terms of the Scheme, the directors may at their discretion invite employees and directors of the Company

or any of its subsidiaries and associates, to take up options to subscribe for shares of the Company. The Scheme is

valid and effective for a period of ten years, ending on 11 April 2012, after which no fur ther options will be granted.

The exercise price of options is determinable by the Board and is the highest of (i) the nominal value of the shares;

(ii) the average of the closing prices of the shares on The Stock Exchange of Hong Kong Limited (“Stock Exchange”)

for five business days immediately preceding the date of the grant; and (iii) the closing price of the shares on the Stock

Exchange on the date of the offer.

The exercise period of the options granted is determinable by the Board, and commences after a cer tain vesting

period and ends on a date which is not later than 10 years from the date of the grant. Pursuant to directors’ written

resolution dated 22 January 2007, the exercise period of the options granted has been changed to not later than 5

years from the date of grant. A nominal consideration of $1 is payable on acceptance of the grant of options. Each

option gives the holder the right to subscribe for one share in the Company.


109



31 EQUITY SETTLED SHARE-BASED TRANSACTIONS (Continued)

(a) The number and weighted average exercise prices of share options are as follows:

2008 2007

Weighted Weighted

average average

exercise Number exercise Number

price of options price of options

Outstanding at 1 April 2007/2006 $0.625 158,212,000 $0.620 191,312,000

Lapsed $0.792 (74,356,000) $0.601 (33,100,000)

Exercised $0.476 (83,856,000) – –

Granted $0.724 124,200,000 – –

At 31 March $0.724 124,200,000 $0.625 158,212,000

Exercisable at 31 March $0.724 124,200,000 $0.625 158,212,000


110




(b) The terms of unexpired and unexercised share options at balance sheet date are as follows, whereby all

options are settled by physical delivery of shares:

Exercise

Date granted Exercise period price 2008 2007

Number Number

Options granted to directors

and contracted employees

22 May 2002 22 May 2002 to 21 May 2007 $0.792 – 17,356,000

22 May 2002 22 August 2002 to 21 May 2007 $0.792 – 14,250,000

22 May 2002 22 August 2003 to 21 May 2007 $0.792 – 14,250,000

22 May 2002 22 August 2004 to 21 May 2007 $0.792 – 14,250,000

22 May 2002 22 August 2005 to 21 May 2007 $0.792 – 14,250,000

31 December 2002 31 December 2002 to 30 December 2007 $0.476 – 83,856,000

21 August 2007 21 August 2007 to 20 August 2012 $0.714 57,600,000 –



16 November 2007 16 November 2007 to 15 November 2012 $0.852 4,500,000 –



124,200,000 158,212,000


111




(c) Details of share options granted during the year

Exercise

Exercise period price 2008 2007

Number Number

21 August 2007 to 20 August 2012 $0.714 115,200,000 –

16 November 2007 to 15 November 2012 $0.852 9,000,000 –

124,200,000 –

(d) Details of share options exercised during the year

Market value

per share at Proceeds

Exercise date Exercise price exercise date received Number

21 May 2007 $0.476 $0.85 952,000 2,000,000

22 May 2007 $0.476 $0.87 952,000 2,000,000

29 May 2007 $0.476 $1.11 952,000 2,000,000

13 June 2007 $0.476 $1.21 952,000 2,000,000

27 June 2007 $0.476 $1.10 2,380,000 5,000,000

7 December 2007 $0.476 $0.86 476,000 1,000,000

10 December 2007 $0.476 $0.85 13,804,000 29,000,000

12 December 2007 $0.476 $0.85 9,282,000 19,500,000

27 December 2007 $0.476 $0.80 10,165,456 21,356,000

39,915,456 83,856,000


112




(e) Share option expenses charged to the consolidated income statement are determined with the binomial

model based on the following assumptions:

21 August 16 November

2007 2007

Fair value of each share option as of the date of grant $0.31 $0.33

Closing price at the date of grant $0.71 $0.80

Exercise price $0.714 $0.852

Expected volatility 50.71% 52.01%

Annual risk-free interest rate 4.15% 3.08%

Expected average life of options 5 years 5 years

Expected dividend yield 1.59% 1.67%

The volatility measured at the standard deviation of annualised expected share price returns is based on

statistical analysis of weekly share prices over the five years immediately preceding the grant date.

32 SHARE CAPITAL 2008 2007

Number Number

of shares Amount of shares Amount

’000 $’000 ’000 $’000

Authorised:

Ordinary shares of $0.1 each 5,000,000 500,000 5,000,000 500,000

Issued and fully paid:

At 1 April 2007/2006 1,559,930 155,993 1,508,914 150,891

Shares issued upon conversion of

conver tible notes (note 30) 266,295 26,630 57,692 5,769

Shares issued under share option scheme 83,856 8,386 – –

Purchase of own shares (note (a)) (800) (80) (6,676) (667)

At 31 March 1,909,281 190,929 1,559,930 155,993

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one

vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual

assets.


113



32 SHARE CAPITAL (Continued)

(a) Purchase of own shares

During the year, the Company repurchased its own ordinary shares on the Stock Exchange as follows:

Number Highest Lowest

of shares price paid price paid Aggregate

Date of repurchase repurchased per share per share price paid

$ $ $’000

28 December 2007 100,000 0.780 0.780 78

2 January 2008 100,000 0.770 0.770 77

3 January 2008 100,000 0.780 0.780 78

9 January 2008 100,000 0.770 0.770 77

14 January 2008 100,000 0.750 0.750 75

15 January 2008 200,000 0.720 0.710 143

17 January 2008 100,000 0.690 0.690 69

800,000 597

The repurchased shares were cancelled and accordingly the issued share capital of the Company was reduced

by the nominal value of these shares. Pursuant to section 49H of the Hong Kong Companies Ordinance, an

amount equivalent to the par value of the shares cancelled of $80,000 (2007: $667,000) was transferred

from retained profits to the capital redemption reserve. The premium paid on the repurchase of the shares of

$517,000 (2007: $2,141,000) was charged to retained profits.

(b) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a

going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders,

by pricing products and services commensurately with the level of risk and by securing access to finance at a

reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the

higher shareholder returns that might be possible with higher levels of borrowings and the advantages and

security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes

in economic conditions.


114



32 SHARE CAPITAL (Continued)

(b) Capital management (Continued)

The Group monitors its capital structure on the basis of a net borrowings to total equity ratio. For this

purpose the Group defines net borrowings as total debt (which includes bank loans, other loan and conver tible

notes) less cash and cash equivalents. Total equity comprises share capital and reserves attributable to equity

shareholders of the Company.

The net borrowings to total equity ratio at 31 March 2008 and 2007 was 11.6% and 9.3% respectively. Neither

the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

33 CAPITAL AND RESERVES

(a) Group

Capital Investment Exchange

Share Share redemption Capital Other revaluation fluctuation Retained Minority Total

capital premium reserve reserve reserve reserve reserve profits Sub-total interests equity

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 April 2006 150,891 1,155,368 354 14,177 77,596 – 26,576 778,392 2,203,354 352,500 2,555,854

Dividend approved and paid

during the year (note 12) – – – – – – – (12,533) (12,533) – (12,533)

Minority interest’s share of dividend – – – – – – – – – (5,853) (5,853)

Changes in fair value of

available-for-sale securities – – – – – 68 – – 68 – 68

Share premium on issue

of shares upon conversion of

conver tible notes (note 32) 5,769 24,694 – – (1,336) – – – 29,127 – 29,127

Shares repurchased (note 32) (667) – 667 – – – – (2,808) (2,808) – (2,808)

Share of minority interest on

disposal of subsidiaries – – – – – – – – – 1,606 1,606

Exchange differences arising

on consolidation – – – – – – 41,012 – 41,012 2,038 43,050

Profit for the year – – – – – – – 134,333 134,333 98,906 233,239

At 31 March 2007 155,993 1,180,062 1,021 14,177 76,260 68 67,588 897,384 2,392,553 449,197 2,841,750


115



33 CAPITAL AND RESERVES (Continued)

(a) Group (Continued)

Capital Investment Exchange

Share Share redemption Capital Other revaluation fluctuation Retained Minority Total

capital premium reserve reserve reserve reserve reserve profits Sub-total interests equity

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 April 2007 155,993 1,180,062 1,021 14,177 76,260 68 67,588 897,384 2,392,553 449,197 2,841,750


during the year (note 12) – – – – – – – (23,192) (23,192) – (23,192)

Minority interest’s share of dividend – – – – – – – – – (57,162) (57,162)

Shares issued under share option

scheme 8,386 31,519 – – – – – – 39,905 – 39,905

Share premium on issue

of shares upon conversion of

conver tible notes (note 32) 26,630 150,204 – – (8,535) – – – 168,299 – 168,299

Shares repurchased (note 32) (80) – 80 – – – – (597) (597) – (597)

Share of minority interest in

additional interests in a

subsidiary – – – – – – – – – (748) (748)

Equity settled share-based

transactions (note 31) – – – 27,984 – – – – 27,984 – 27,984

Exchange differences arising

on consolidation – – – – – – 94,942 – 94,942 10,797 105,739

Available-for-sale securities:

– changes in fair value – – – – – (120) – – (120) – (120)

– transfer to profit or loss on

impairment – – – – – 52 – – 52 – 52

Profit for the year – – – – – – – 16,503 16,503 46,291 62,794

At 31 March 2008 190,929 1,361,785 1,101 42,161 67,725 – 162,530 890,098 2,716,329 448,375 3,164,704

The application of the share premium account and the capital redemption reserve is governed by sections 48B

and 49H respectively of the Hong Kong Companies Ordinance.

The capital reserve has been set up and will be dealt with in accordance with the accounting policies adopted

for goodwill arising on or derived from acquisition or disposal of subsidiaries and associates prior to 1 April

2004 and share-based payments in notes 1(e) and (r)(ii) respectively.

The exchange fluctuation reserve has been set up and will be dealt with in accordance with the accounting

policies adopted for the foreign currency translation in note 1(w).


116




(a) Group (Continued)

Other reserve comprises of the value of unexercised equity component of conver tible notes issued by the

Company recognised in accordance with the accounting policy adopted for conver tible notes in note 1(n).

The investment revaluation reserve has been set up and will be dealt with in accordance with the accounting

policies adopted for the gain or loss on revaluation and disposal of available-for-sale securities in note 1(f).

(b) Company

Capital Investment

Share Share redemption Capital Other revaluation Retained

capital premium reserve reserve reserve reserve profits Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 April 2006 150,891 1,155,368 354 – 77,596 – 448,228 1,832,437


during the year – – – – – – (12,533) (12,533)

Changes in fair value of

available-for-sale securities – – – – – 68 – 68

Share premium on issue of shares

upon conversion of

conver tible notes 5,769 24,694 – – (1,336) – – 29,127

Shares repurchased (667) – 667 – – – (2,808) (2,808)

Loss for the year – – – – – – (26,945) (26,945)

At 31 March 2007 155,993 1,180,062 1,021 – 76,260 68 405,942 1,819,346


117




(b) Company (Continued)

Capital Investment

Share Share redemption Capital Other revaluation Retained

capital premium reserve reserve reserve reserve profits Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 April 2007 155,993 1,180,062 1,021 – 76,260 68 405,942 1,819,346


during the year – – – – – – (23,192) (23,192)

Share issued under share option

scheme 8,386 31,519 – – – – – 39,905

Share premium on issue of shares

upon conversion of

conver tible notes 26,630 150,204 – – (8,535) – – 168,299

Shares repurchased (80) – 80 – – – (597) (597)

Equity settled share-based

transactions – – – 27,984 – – – 27,984

Available-for-sale securities:

– changes in fair value – – – – – (120) – (120)

– transfer to profit or loss on

impairment – – – – – 52 – 52

Profit for the year – – – – – – 35,888 35,888

At 31 March 2008 190,929 1,361,785 1,101 27,984 67,725 – 418,041 2,067,565

At 31 March 2008, the amount of distributable reserves of the Company amounted to $418,041,000 (2007:

$397,285,000).


118



34 DEFERRED TAXATION

(a) Deferred tax assets and liabilities recognised:

(i) Group

The components of deferred tax (assets)/liabilities recognised in the consolidated balance sheet and the

movements during the year are as follows:

Depreciation

allowances Impairment Fair value

in excess Provision loss Reversal of changes on

of related Deferred for obsolete for bad and overprovision Deferred trading

depreciation revenue inventories doubtful debts and accruals expenses securities Tax losses Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Deferred tax arising from:

At 1 April 2006 1,128 (991) (977) (2,520) 130 – – (276) (3,506)

Charged/(credited) to

consolidated income

statement 247 3 (3,272) 28 7 (30,845) 31,113 3 (2,716)

At 31 March 2007 1,375 (988) (4,249) (2,492) 137 (30,845) 31,113 (273) (6,222)

At 1 April 2007 1,375 (988) (4,249) (2,492) 137 (30,845) 31,113 (273) (6,222)

Charged/(credited) to

consolidated income

statement 2,923 (379) (3,925) (438) 21 (19,087) 11,981 (91) (8,995)

Effect of change in tax

rate on deferred

tax balances (129) (658) (746) (1,661) 91 7,478 – 15 4,390

At 31 March 2008 4,169 (2,025) (8,920) (4,591) 249 (42,454) 43,094 (349) (10,827)


119



34 DEFERRED TAXATION (Continued)

(a) Deferred tax assets and liabilities recognised: (Continued)

(ii) Company

The components of deferred tax (assets)/liabilities recognised in the balance sheet and the movements

during the year are as follows:

Depreciation

allowances

in excess

of related

depreciation Tax losses Total

$’000 $’000 $’000

At 1 April 2006 63 (63) –

Charged/(credited) to income statement (36) 36 –

At 31 March 2007 27 (27) –

At 1 April 2007 27 (27) –

Charged/(credited) to income statement 82 (82) –

Effect of change in tax rate on deferred

tax balances (1) 1 –

At 31 March 2008 108 (108) –

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Net deferred tax assets

recognised on the

consolidated balance sheet (14,647) (7,241) – –

Net deferred tax liabilities

recognised on the

consolidated balance sheet 3,820 1,019 – –

(10,827) (6,222) – –


120



34 DEFERRED TAXATION (Continued)

(b) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 1(s), the Group has not recognised deferred tax assets

in respect of unused tax losses of $35,359,000 (2007: $31,021,000) and deductible temporary differences

of $40,248,000 (2007: $36,847,000) as it is not probable that there will be sufficient taxable profits available

against which the unused tax losses and deductible temporary differences can be utilised. The tax losses do not

expire under current tax legislation.

35 FINANCIAL INSTRUMENTS

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. The

Group is also exposed to equity price risk arising from its equity investments in other entities. These risks are limited

by the Group’s financial management policies and practices described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. Management has a credit policy

in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring

credit over a cer tain amount. These receivables are due ranging from 60 days to 90 days from the date of

billing. Debtors with balances that are more than 6 months overdue are requested to settle all outstanding

balances before any fur ther credit is granted. Normally, the Group does not obtain collateral from customers.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the

balance sheet. The Group does not have any significant exposure to any individual customer or counterpar ty

nor does it have any major concentration of credit risk related to any financial instruments.

(b) Liquidity risk

Individual operating entities with the Group are responsible for their own cash management, including the shor t

term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval

by the parent company’s board when the borrowings exceed cer tain predetermined levels of authority. The

Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to

ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate

committed lines of funding from major financial institutions to meet its liquidity requirements in the shor t and

longer term.


121



35 FINANCIAL INSTRUMENTS (Continued)

(b) Liquidity risk (Continued)

The following table details the remaining contractual maturities at the balance sheet date of the Group’s and

the Company’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows

(including interest payments computed using contractual rates or, if floating, based on rates current at the

balance sheet date) and the earliest date the Group and the Company can be required to pay:

Group

2008 2007

Total More than More than Total More than More than

contractual Within 1 1 year but 2 years but contractual Within 1 1 year but 2 years but

Carrying undiscounted year or less than less than More than Carrying undiscounted year or less than less than More than

amount cash flow on demand 2 years 5 years 5 years amount cash flow on demand 2 years 5 years 5 years

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Conver tible notes 404,279 421,470 331,860 89,610 – – 560,431 608,130 6,510 460,510 141,110 –

Bank loans 153,113 160,079 158,088 1,991 – – 21,606 22,019 17,421 2,640 1,958 –

Other loan 311,240 311,240 311,240 – – – 117,210 117,210 117,210 – – –

Trade and other payables 376,351 376,351 376,351 – – – 286,660 286,660 286,660 – – –

1,244,983 1,269,140 1,177,539 91,601 – – 985,907 1,034,019 427,801 463,150 143,068 –

Company

2008 2007

Total More than More than Total More than More than

contractual Within 1 1 year but 2 years but contractual Within 1 1 year but 2 years but

Carrying undiscounted year or less than less than More than Carrying undiscounted year or less than less than More than

amount cash flow on demand 2 years 5 years 5 years amount cash flow on demand 2 years 5 years 5 years

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Conver tible notes 404,279 421,470 331,860 89,610 – – 560,431 608,130 6,510 460,510 141,110 –

Trade and other payables 13,072 13,072 13,072 – – – 20,138 20,138 20,138 – – –

417,351 434,542 344,932 89,610 – – 580,569 628,268 26,648 460,510 141,110 –


122




(c) Interest rate risk

The Group has interest rate risk as cer tain interest-bearing borrowings are on a variable rate basis. The Group’s

interest rate profile as monitored by management is set out in (i) below. The Group does not expect any

changes on interest rates which might materially affect the Group’s result of operations.

During the year, the Group and the Company had not entered into any interest rate swap contracts.

(i) Interest rate profile

The following table details the interest rate profile of the Group’s and the Company’s net borrowings (as

defined above) at the balance sheet date.

Group Company

2008 2007 2008 2007

Effective Effective Effective Effective

interest rate interest rate interest rate interest rate

% $’000 % $’000 % $’000 % $’000

Net fixed rate

borrowings:

Bank loans 7.8 110,951 – – – – – –

Conver tible notes 4.0 404,279 4.0 560,431 4.0 404,279 4.0 560,431

515,230 560,431 404,279 560,431

Variable rate

borrowings:

Bank loans 5.6 42,162 5.5 21,606 – – – –

Other loan 5.0 311,240 5.7 117,210 – – – –

353,402 138,816 – –

Total net borrowings 868,632 699,247 404,279 560,431

Net fixed rate borrowings

as a percentage of total

net borrowings 59% 80% 100% 100%


123




(d) Currency risk

Almost all the Group’s operating activities are carried out in the PRC with most of the transactions

denominated in Renminbi. The Group is exposed to foreign currency risk arising from the exposure of Renminbi

against Hong Kong dollars as a result of its investment in the PRC and cer tain of the general and administrative

expenses are settled in Hong Kong dollars. In addition, Renminbi is not freely conver tible into foreign currencies

and the conversion of Renminbi into foreign currencies is subject to rules and regulations of the foreign

exchange control promulgated by the PRC government.

The Group is also exposed to foreign currency risk in respect of its United States Dollars denominated assets

and liabilities.

(i) Exposure to currency risk

The following table details the Group’s exposure at the balance sheet date to currency risk arising from

forecast transactions or recognised assets or liabilities denominated in United States Dollars.

Group

2008 2007

United United

States States

Dollars Dollars

$’000 $’000

Trading securities 88,205 84,101

Trade and other receivables 10,179 9,471

Cash and cash equivalents 2,240 1,442

Bank loans (4,856) (2,155)

Other loan (40,000) (15,000)

Trade and other payables (1,576) (838)

Gross exposure arising from recognised

assets and liabilities 54,192 77,021

(ii) Sensitivity analysis

Management assumed that the pegged rate between the Hong Kong dollars and the United States

Dollars would be materially unaffected by any changes in movement in value of the United States

Dollars against other currencies. Therefore, the impact on the Group’s profit and total equity is not

expected to be material in response to possible changes in United States Dollars to which the Group is

exposed.


124




(e) Equity price risk

The Group is exposed to equity price changes arising from equity investments classified as trading securities (see

note 23) and available-for-sale equity securities (see note 22). Other than unquoted securities held for strategic

purposes, all of these investments are listed.

The Group’s listed investments are listed on the Stock Exchange of Hong Kong, the Shanghai Stock Exchange

and the NASDAQ Stock Exchange. Decisions to buy or sell trading securities are based on daily monitoring of

the performance of individual securities compared to that of the market and other industry indications, as well

as the Group’s liquidity needs. Listed investments held in the available-for-sale por tfolio have been chosen based

on their longer term growth potential and are monitored regularly for performance against expectations.

The following table indicates the approximate change in the Group’s profit after tax (and retained profits) and

other components of consolidated equity in response to reasonably possible changes in the relevant stock

market index (for listed investments) to which the Group has significant exposure at the balance sheet date.

2008 2007

Effect on Effect on

Increase/ profit after Effect on Increase/ profit after Effect on

(decrease) in tax and other (decrease) in tax and other

the relevant retained components the relevant retained components

risk variable profits of equity risk variable profits of equity

$’000 $’000 $’000 $’000

Stock market index

in respect of listed

investments:

Shanghai Stock

Exchange A Share 1% 2,633 – 1% 1,868 –

Index (1)% (2,633) – (1)% (1,868) –

NASDAQ 1% 9,396 – 1% 6,309 –

Composite Index (1)% (9,396) – (1)% (6,309) –


125




(e) Equity price risk (Continued)

The sensitivity analysis has been determined assuming that the reasonably possible changes in the stock

market index or other relevant risk variables had occurred at the balance sheet date and had been applied

to the exposure to equity price risk in existence at that date. It is also assumed that the fair values of the

Group’s equity investments would change in accordance with the historical correlation with the relevant stock

market index or the relevant risk variables, that none of the Group’s equity investments would be considered

impaired as a result of a reasonably possible decrease in the relevant stock market index or other relevant risk

variables, and that all other variables remain constant. The stated changes represent management’s assessment

of reasonably possible changes in the relevant stock market index or the relevant risk variables over the period

until the next annual balance sheet date. The analysis is performed on the same basis for 2007.

(f) Fair values

All financial instruments are carried at amounts not materially different from their fair values as at 31 March

2008 and 2007 except as follows:

(i) Group and Company

2008 2007

Carrying Fair Carrying Fair

amount value amount value

$’000 $’000 $’000 $’000

Conver tible notes 404,279 402,568 560,431 545,034

(ii) Amounts due from subsidiaries

The amounts due from subsidiaries are unsecured, interest-free and have no repayment terms. Given

these terms it is not meaningful to quantify their fair values and they are stated at cost.

(iii) Unlisted investments

Cer tain investments of the Group of $53,955,000 (2007: $42,539,000) and of the Company of

$50,134,000 (2007: $39,070,000) do not have a quoted market price in an active market and therefore

their fair values cannot be reliably measured. They are recognised at cost less impairment losses.


126




(g) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of financial

instruments reflected in the table set out in note 35(f) above.

Convertible notes

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates

for similar financial instruments.

Securities

Fair value is based on quoted market prices at the balance sheet date without any deduction for transaction

costs. Fair values for the unquoted equity investments are estimated using the applicable price/earning ratios for

similar listed companies adjusted for the specific circumstances of the issuer.

36 COMMITMENTS

(a) Capital commitments

Capital commitments outstanding at balance sheet date not provided for in the financial statements were as

follows:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Contracted for 2,237 57,684 – –

Authorised but not contracted for 38,905 2,687 – –

41,142 60,371 – –


127



36 COMMITMENTS (Continued)

(b) Operating lease commitments

At balance sheet date, the total future minimum lease payments under non-cancellable operating leases are

payable as follows:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Within 1 year 11,717 13,167 1,335 1,362

After 1 year but within 5 years 15,209 6,322 – 363

26,926 19,489 1,335 1,725

37 CONTINGENT LIABILITIES Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Guarantees given to banks in respect of

credit facilities granted to subsidiaries – – 63,000 55,000

Guarantee given to a bank to secure

banking facilities of an associate – 40,580 – –

– 40,580 63,000 55,000

The Company has not recognised any deferred income for the guarantees given in respect of credit facilities granted

to subsidiaries as their fair value cannot be reliably measured and their transaction price was $Nil.


128



38 MATERIAL RELATED PARTY TRANSACTIONS

The following material transactions with related par ties were, in the opinion of the directors, carried out in the

ordinary course of business and on normal commercial terms:

2008 2007

$’000 $’000

(a) Transactions with and amounts paid to or received from

Stone Group Corporation (“SGC”), a minority shareholder

of the Group:

Sale of traded products 265 1,683

Purchase of traded products and component par ts 1,742 3,307

Management fees (based on actual cost incurred) paid in relation

to training, secretarial and general administrative services (note (i)) 3,297 3,500

Rental paid for staff quar ters 981 978

Rental income on proper ties (note (ii)) 847 822

Handling fee (note (iii)) 27 41

(b) Transactions with associates of the Group:

– Sales of traded products 2,820 396

– Purchases of traded products and component par ts 2,243 3,428

(c) Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors as disclosed

in note 9 and cer tain of the highest paid employees as disclosed in note 10, is as follows:

2008 2007

$’000 $’000

Short-term employee benefits 22,993 16,523

Post-employment benefits 160 92

Equity compensation benefits – –

23,153 16,615

Total remuneration is included in “staff costs” (see note 7(b)).


129



38 MATERIAL RELATED PARTY TRANSACTIONS (Continued)

(c) Key management personnel remuneration (Continued)

Notes:

(i) On 24 September 2003, the Company entered into a management contract whereby SGC agreed to provide secretarial

and other related services and the use of office equipment to the Group at reimbursement cost which shall not exceed

$3,500,000 per annum for a term of five years commencing from 23 July 2003.

(ii) A subsidiary of the Group acquired the Stone Building situated in Beijing from SGC during 1996 and leased various units

of the Stone Building to SGC for a lease term of three years commencing from 1 August 1996. The lease term has been

renewed on an annual basis thereafter. The rental income received for the year ended 31 March 2008 was calculated at a

daily rate of RMB6 per square metre which was considered to be not materially different from the market rental.

(iii) In March 1999, Beijing Stone New Technology Industrial Company Limited (“Beijing New Technology”) entered into an

agreement with SGC, pursuant to which Beijing New Technology appointed SGC to act as its agent to deal with all import

procedural matters during the year 1999. The agreement may be renewed on an annual basis thereafter. A handling fee was

payable to SGC pursuant to the agreement and was calculated at 1.3% of the cost of goods shipped which was considered

to be not materially different from the market price.

39 COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current year’s presentation.

40 PARENT AND ULTIMATE CONTROLLING PARTY

At 31 March 2008, the directors consider the parent and ultimate controlling par ty of the Group to be Beijing Stone

Investment Company Limited and the Beijing Stone Investment Co., Ltd Employees’ Shareholding Society respectively,

which are established in the PRC. These entities do not produce financial statements available for public use.


130



41 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

Key sources of estimation uncertainty

Notes 18, 21 and 35 contain information about the assumptions and their risk factors relating to goodwill impairment

and financial instruments. Other key sources of estimation uncer tainty are as follows:

– Valuation of investment properties

Investment proper ties are included in the balance sheet at their open market value, which is assessed annually

by independent qualified valuers, after taking into consideration the net income allowing for reversionary

potential.

The assumptions adopted in the proper ty valuations are based on the market conditions existing at the balance

sheet date, with reference to current market sales prices and the appropriate capitalisation rate.

– Assessment of useful economic lives for depreciation of fixed assets

In assessing the estimated useful lives of fixed assets, management takes into account factors such as the

expected usage of the asset by the Group based on past experience, the expected physical wear and tear

(which depends on operational factors), technical obsolescence arising from changes or improvements in

production or from a change in the market demand for the product or service output of the asset. The

estimation of the useful life is a matter of judgment based on the experience of the Group.

Management reviews the useful lives of fixed assets annually, and if expectations are significantly different from

previous estimates of useful economic lives, the useful lives and, therefore, the depreciation rate for the future

periods will be adjusted accordingly.

– Assessment of impairment of non-current assets

Management assesses the recoverable amount of each asset based on its value in use (using relevant rates)

or on its net selling price (by reference to market prices), depending upon the anticipated future plans for the

asset. Estimating the value in use of an asset involves estimating the future cash inflows and outflows to be

derived from continuing use of the asset and from its ultimate disposal and applying the appropriate discount

rate to these future cash flows. Cash flow projections for remaining useful life of the asset and the most recent

financial budgets/forecasts are approved by management.

– Recognition of deferred tax assets

The recognition of deferred tax assets requires formal assessment by the Group of the future profitability of

related operations. In making this judgment, the Group evaluates, amongst other factors, the forecast financial

performance, changes in technology and operational and financing cashflows.


131



42 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 MARCH 2008

Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards

and interpretations which are not yet effective for the year ended 31 March 2008 and which have not been adopted in

these financial statements.

The Group is in the process of making an assessment of what the impact of these amendments, new standards and

new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of

them is unlikely to have a significant impact on the Company’s results of operations and financial position.

In addition, the following developments may result in new or amended disclosures in the financial statements:

Effective for

accounting periods

beginning on or after

HK (IFRIC) 11 HKFRS 2 - Group and treasury share transactions 1 March 2007

HK (IFRIC) 13 Customer loyalty programmes 1 July 2008

HKFRS 8 Operating segments 1 January 2009

Revised HKAS 1 Presentation of financial statements 1 January 2009

Revised HKAS 23 Borrowing costs 1 January 2009

Revised HKFRS 3 Business combinations 1 July 2009

Revised HKAS 27 Consolidated and separate financial statements 1 July 2009


132



43 SUBSIDIARIES

Details of the principal subsidiaries, which materially affected the results or assets of the Group at 31 March 2008, are

as follows:

Place of

incorporation/ Issued and fully

establishment paid capital/ Attributable

Name of company and operation registered capital interest Principal activities

Stone Advance Technology Hong Kong $40,000,000 100% Sourcing of electronic

Limited and office equipment,

and component par ts

Prexton Investment Limited Hong Kong $10,000 100% Proper ty investment

Key Success Trading Limited Hong Kong $2 100% Proper ty investment

Gold Vantage Investments Hong Kong $2 100% Proper ty investment

Limited

Shanghai GoldPar tner PRC $100,000,000 75% Manufacture, sale and

Biotech Co., Ltd.* distribution of

healthcare products

Beijing Stone Electronic PRC US$21,300,000 100% Investment holding

Technology Co., Ltd.

Beijing Stone New PRC RMB175,000,000 100% Investment holding and

Technology Industrial distribution and sale

Co., Ltd.* of electronic and

electrical products

and office equipment


133



43 SUBSIDIARIES (Continued)

Place of

incorporation/ Issued and fully

establishment paid capital/ Attributable

Name of company and operation registered capital interest Principal activities

Beijing Stone Industrial PRC RMB30,000,000 61.67% Sale of industrial

Control Technology controllers products

Company Limited*

Beijing Stone Computer PRC RMB50,000,000 51% Manufacture and

Co., Ltd.* distribution of

(“Beijing computers and

Stone Computer”) network components

Sun Stone Media Group BVI $8 ##51% Investment holding

Limited*

Tianjin Stone PRC US$800,000 75% Manufacture and sale

Computer Equipment of fluorescent

Corporation Limited* electronic ballasts

Stone Online Sci & Tech PRC RMB22,500,000 80% Investment holding

Co., Ltd. (Beijing)*

Shanghai Stone Hu Guang PRC RMB14,000,000 ^ 51% Manufacture and

Technology Shareholding distribution of lighting

Company Limited* fixtures and sliding

doors

Guangdong Sunnet Cafe PRC RMB20,200,000 60% Operation of internet

Development Co., Ltd cafe chains

* Indirect holding.## This subsidiary is 100% owned by Sun Stone New Media Limited in which the Company has 51% direct interest.^ This subsidiary is 100% owned by Beijing Stone Computer in which the Company has 51% indirect interest.


134



44 ASSOCIATESDetails of the principal associates, which materially affected the results or assets of the Group at 31 March 2008, are as

follows:

Place of

establishment Attributable

Name of company and operation Registered capital interest Principal activities

Beijing Stone Zhi Neng PRC RMB16,000,000 23.5% Provision of terminal

Technology Company* network system and

mobile messaging

services system

Beijing Stone Digital PRC RMB50,000,000 30% Provision of electronic

Technology Co., Ltd.* commerce service

China Cable Media Cayman US$29,376,733 36.12% Investment holding

Group Limited* Islands

Censoft Company PRC RMB30,000,000 30% Development and

Limited* distribution of

application Software

Me To You Holdings Limited* Cayman US$50,000 49% Investment holding

Islands

Shandong New Kaiyuan PRC RMB210,000,000 47.62% Proper ty investment

Real Estate Co., Ltd

* Indirect holding.


135


FIVE YEAR FINANCIAL SUMMARY

2003 2004/05 2005/06 2006/07 2007/08 (restated) (restated)

$’000 $’000 $’000 $’000 $’000

Results

Turnover 1,015,277 2,361,507 2,035,467 2,375,541 2,988,051

Operating profit 1,722,466 259,017 78,093 311,045 158,311Share of profits less losses of

associates (15,183) (16,391) 5,547 (12,463) (14,696)Share of loss of

a jointly controlled entity – (1,420) (5,101) – –

Profit before taxation 1,707,283 241,206 78,539 298,582 143,615Income tax (583) (3,126) (18,522) (65,343) (80,821)

Profit for the year/period 1,706,700 238,080 60,017 233,239 62,794

Attributable to:

Equity shareholders of the Company 801,186 160,426 63,908 134,333 16,503

Minority interests 905,514 77,654 (3,891) 98,906 46,291

Profit for the year/period 1,706,700 238,080 60,017 233,239 62,794

Assets and Liabilities

Investment proper ties,

proper ty, plant and

equipment, goodwill,

other intangible assets,

and deferred tax assets 187,825 1,365,438 1,376,864 1,416,147 1,459,997Interest in associates 169,956 53,465 388,468 388,142 585,159Interest in a jointly controlled entity – 185,296 – – –Other financial assets 43,042 157,165 44,046 44,294 55,590Net current assets 2,470,781 1,523,018 1,321,329 1,558,992 1,155,748

2,871,604 3,284,382 3,130,707 3,407,575 3,256,494

Long term liabilities (214,000) (832,955) (574,001) (564,806) (87,970)Deferred tax liabilities – (507) (852) (1,019) (3,820)

2,657,604 2,450,920 2,555,854 2,841,750 3,164,704

136


GROUP PROPERTIES

1 MAJOR PROPERTIES HELD FOR INVESTMENT

Location Existing use Term of lease

Stone Building, Office Medium

Haidian South Avenue,

Haidian District,

Beijing, the PRC

10/F, Haven Commercial Building, Office Long

Nos. 6-8 Tsing Fung Street,

North Point, Hong Kong

Unit Nos. 821 and 822, 8th level of Office Medium

Bright China Chang An Building,

7 Jianguomennei Avenue,

Dong Cheng District,

Beijing, the PRC

Unit 2201-2223, Office Medium

20th level of Zhongguancun

High-Tech Trade Centre,

Beijing, the PRC

2 PROPERTIES HELD FOR SALE

Existing Gross floor Group's

Location use area interest

The Whole Floor of 5th Floor, Office 3,987m2 100%

Dalian International Trade Centre,

No 201, 4th Road,

Huanghaixi Road,

Dalian Free Trade Zone,

Dalian City

Liaoning Province

the PRC

Documents

四通控股有限公司 STONE GROUP HOLDINGS LIMITED2 STONE GROUP HOLDINGS LIMITED ANNUAL REPORT 2007/08 CORPORATE INFORMATION BOARD OF DIRECTORS Executive Directors DUAN Yongji (Chairman